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INFORMATION ^ 


FORECLOSED JUSTICE: CAUSES AND EFFECTS OF 
THE FORECLOSURE CRISIS (PART I & II) 


HEARING 

BEFORE THE 

COMMITTEE ON THE JUDICIARY 
HOUSE OF REPRESENTATDH]S 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 


DECEMBER 2, 2010 AND DECEMBER 15, 2010 

Serial No. 111-158 


Printed for the use of the Committee on the Judiciary 



Available via the World Wide Web: http://judiciary.house.gov 



o 



FORECLOSED JUSTICE: CAUSES AND EFFECTS OF 
THE FORECLOSURE CRISIS (PART I & II) 


HEARING 

BEFORE THE 

COMMITTEE ON THE JUDICIARY 
HOUSE OF REPRESENTATDH]S 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 


DECEMBER 2, 2010 AND DECEMBER 15, 2010 

Serial No. 111-158 


Printed for the use of the Committee on the Judiciary 



Available via the World Wide Web: http://judiciary.house.gov 


U.S. GOVERNMENT PRINTING OFFICE 
62-935 PDF WASHINGTON : 2011 


For sale by the Superintendent of Documents, U.S. Government Printing Office 
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 
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COMMITTEE ON THE JUDICIARY 


JOHN CONYERS, 
HOWARD L. BERMAN, California 
RICK BOUCHER, Virginia 
JERROLD NADLER, New York 
ROBERT C. “BOBBY” SCOTT, Virginia 
MELVIN L. WATT, North Carolina 
ZOE LOFGREN, California 
SHEILA JACKSON LEE, Texas 
MAXINE WATERS, California 
WILLIAM D. DELAHUNT, Massachusetts 
STEVE COHEN, Tennessee 
HENRY C. “HANK” JOHNSON, jR., 
Georgia 

PEDRO PIERLUISI, Puerto Rico 
MIKE QUIGLEY, Illinois 
JUDY CHU, California 
TED DEUTCH, Florida 
LUIS V. GUTIERREZ, Illinois 
TAMMY BALDWIN, Wisconsin 
CHARLES A. GONZALEZ, Texas 
ANTHONY D. WEINER, New York 
ADAM B. SCHIFF, California 
LINDA T. SANCHEZ, California 
DANIEL MAFFEI, New York 
JARED POLIS, Colorado 


Jr., Michigan, Chairman 
LAMAR SMITH, Texas 
F. JAMES SENSENBRENNER, Jr., 
Wisconsin 

HOWARD COBLE, North Carolina 
ELTON GALLEGLY, California 
BOB GOODLATTE, Virginia 
DANIEL E. LUNGREN, California 
DARRELL E. ISSA, California 
J. RANDY FORBES, Virginia 
STEVE KING, Iowa 
TRENT FRANKS, Arizona 
LOUIE GOHMERT, Texas 
JIM JORDAN, Ohio 
TED POE, Texas 
JASON CHAFFETZ, Utah 
TOM ROONEY, Florida 
GREGG HARPER, Mississippi 


Perry Apelbaum, Majority Staff Director and Chief Counsel 
Sean McLaughlin, Minority Chief of Staff and General Counsel 


(II) 



CONTENTS 


Page 

HEARING DATES 

Thursday, December 2, 2010 

Foreclosed Justice: Causes and Effects of the Foreclosure Crisis 

(Part I) 1 

Wednesday, December 15, 2010 

Foreclosed Justice: Causes and Effects of the Foreclosure Crisis 
(Part II) 113 

(PART I) 

December 2, 2010 
OPENING STATEMENTS 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Chairman, Committee on the Judiciary 2 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary 4 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Member, Committee on the Judiciary 5 

The Honorable Darrell Issa, a Representative in Congress from the State 

of California, and Member, Committee on the Judiciary 7 

The Honorable Ted Deutch, a Representative in Congress from the State 

of Florida, and Member, Committee on the Judiciary 8 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Member, Committee on the Judiciary 9 

The Honorable Mike Quigley, a Representative in Congress from the State 

of Illinois, and Member, Committee on the Judiciary 10 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Member, Committee on the Judiciary 10 

The Honorable Louie Gohmert, a Representative in Congress from the State 
of Texas, and Member, Committee on the Judiciary 11 

WITNESSES 

Ms. Phyllis Caldwell, Chief, Homeownership Preservation Office, United 
States Department of the Treasury 

Oral Testimony 13 

Prepared Statement 16 

Mr. Edward J. DeMarco, Acting Director, Federal Housing Finance Agency 

Oral Testimony 27 

Prepared Statement 29 

Ms. Julie L. Williams, Chief Counsel, Office of the Comptroller of the Cur- 
rency, United States Department of the Treasury 

Oral Testimony 42 

Prepared Statement 44 

The Honorable F. Dana Winslow, Supreme Court Justice, New York State 
Supreme Court 

Oral Testimony 61 

Prepared Statement 63 


(III) 



IV 


Page 


(PART II) 

December 15, 2010 
OPENING STATEMENTS 

The Honorable Henry C. “Hank” Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Member, Committee on the Judiciary 119 

The Honorable Lamar Smith, a Representative in Congress from the State 
of Texas, and Ranking Member, Committee on the Judiciary 120 

WITNESSES 

The Honorable Sheldon Whitehouse, a U.S. Senator from the State of Rhode 
Island 

Oral Testimony 113 

Prepared Statement 117 

James A. Kowalski, Jr., Esquire, Law Offices of James A. Kowalski, Jr., 

PL, Jacksonville, FL 

Oral Testimony 122 

Prepared Statement 125 

Thomas A. Cox, Esquire, Volunteer Program Coordinator, Maine Attorneys 
Saving Homes Project, Portland, ME 

Oral Testimony 289 

Prepared Statement 292 

Ms. Sandra D. Hines, former homeowner, Detroit, MI 

Oral Testimony 431 

Prepared Statement 434 

Vanessa Fluker, Vanessa G. Fluker, Esquire, PLLC, Detroit, MI 

Oral Testimony 436 

Prepared Statement 438 

Mr. Tom Deutsch, Executive Director, American Securitization Forum, New 
York, NY 

Oral Testimony 443 

Prepared Statement 446 

Mr. Christopher L. Peterson, Professor, S.J. Quinney College of Law, Univer- 
sity of Utah, Salt Lake City, UT 

Oral Testimony 499 

Prepared Statement 501 

APPENDIX 

Material Submitted for the Hearing Record 

Prepared Statement from Mortgage Electronic Registration Systems, Inc. 
(MERS) 544 



FORECLOSED JUSTICE: 
CAUSES AND EFFECTS OF THE 
FORECLOSURE CRISIS (PART I) 


THURSDAY, DECEMBER 2, 2010 

House of Representatives, 
Committee on the Judiciary, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:12 a.m., in room 
2141, Rayburn House Office Building, the Honorable John Conyers, 
Jr. (Chairman of the Committee) presiding. 

Present: Representatives Conyers, Boucher, Jackson Lee, Waters, 
Cohen, Quigley, Chu, Deutch, Gonzalez, Sanchez, Smith, Coble, 
Goodlatte, Issa, Forbes, Franks, Gohmert, and Chaffetz. 

Staff Present: (Majority) Perry Apelbaum, Majority Staff Director 
and Chief Counsel; Susan Jensen, Counsel; James Park, Counsel; 
Reuben Goetzl, Clerk; and Zachary Somers, Minority Counsel. 

Mr. Conyers. Good morning. The Committee will come to order. 
We are going to begin by thanking our three colleagues who will 
not be returning to Congress next year for their fine and out- 
standing contributions to the Committee. The first is Rick Boucher 
who has been with us since he arrived in 1983. Actually, the third 
most senior Member on the Committee, who has served on Energy 
and Commerce simultaneously for most of that time. And he has 
always been able to be counted on for bringing to us a thoughtful 
perspective to many of the sensitive issues that are dealt with on 
the House Judiciary Committee. 

I have got a number of issues that he has championed: The Free 
Flow of Information Act, Satellite Home Viewers Act, he did a lot 
of work on the PATRIOT Act, and we have always been able to 
count on him for an honest evaluation of the many problems that 
we have dealt with. And his absence will be missed greatly. The 
next is Bill Delahunt from Massachusetts, a former prosecutor, 
who authored the Innocence Protection Act, has worked the last 
couple of congressional sessions on the Foreign Affairs Committee. 
He has championed equity state sales tax levies. And we remember 
him also for joining our other colleague, Mel Watt, who is not leav- 
ing, in creating the states rights caucus, and we had some inter- 
esting contributions there. 

And finally, Dan Maffei, who was only with us for one term, but 
he took the lead in saving hundreds of dealerships at General Mo- 
tors and Chrysler, and he helped strengthen legislation to protect 
employees and retirees caught up in bankruptcies. Dan has a great 
opportunity, and he has clearly enjoyed being with us. We hope he 

( 1 ) 



2 


can return. And I will yield to my Ranking Member, Mr. Smith, 
Lamar, for any comments he may want to make about departing 
Members. 

Mr. Smith. Thank you, Mr. Chairman. I really just want to echo 
your comments and sentiments, because I agree with you 100 per- 
cent. Mr. Delahunt is not here and Mr. Maffei is not here, so I 
won’t dwell on them to the extent that I might have otherwise. But 
I do want to single out Rick Boucher as someone who has been a 
friend over many years, someone who has worked with me, and I 
with him, on any number of issues, particularly those issues involv- 
ing the subject of high tech and patent reform and telecommuni- 
cations as well. 

He is an expert in many, many areas. And oftentimes to hear 
him speak about those issues is to hear an unwritten Ph.D thesis. 
And I often feel like it could be taken down and turned in as such. 
And we agree on so many issues. I won’t mention the DMCA be- 
cause there are so many other issues we agree on. But he will be 
missed as well, both his manner and his intelligence. But I do hope 
he stays in touch with this Committee and with you and me, Mr. 
Chairman, as well, because the friendship that we have with Mr. 
Boucher needs to continue and I am sure it will. And I will yield 
back. 

Mr. Conyers. Thank you very much, Lamar. Is there any other 
Member disposed to make a comment? 

Mr. Forbes. Mr. Chairman. 

Mr. Conyers. Yes, of course. The gentleman is recognized. 

Mr. Forbes. Mr. Chairman, I would just like to echo what both 
of you said about Rick Boucher, and that is with no slight to the 
other Members, but I have enjoyed serving with Rick over the 
years in the Virginia delegation. Arid everything the Ranking Mem- 
ber said about his demeanor and his expertise has been so true. We 
have had a great working relationship and a great friendship. And 
Rick, we just appreciate your service, not only to the country, but 
to the Commonwealth of Virginia. 

Mr. Conyers. Well, spoken like a true Virginian, Randy Forbes. 
If there are no other comments 

Mr. Gonzalez. Mr. Chairman. 

Mr. Conyers. Yes, Judge Gonzalez, Texas. 

Mr. Gonzalez. And I will be brief But I have had the great 
privilege of knowing Rick now and serving with him both on Judici- 
ary and Energy and Commerce. It has been an incredible experi- 
ence. One, he is such a good friend. But to have a friend who is 
also a mentor is just the most incredible combination you can have, 
especially a Member of Congress. You are going to be missed, Rick. 

But my sense is that hopefully we still will be in contact because 
we have so much to still learn from you on a continuing basis. 
Again, it has been great, and I just wish you were still coming back 
next year and standing with us as we all got sworn in, as we get 
sworn in in January. Thank you, Mr. Chairman. I yield back. 

Mr. Conyers. Thank you very much, Mr. Gonzalez. Today’s hear- 
ing is entitled Foreclosed Justice: Causes and Effects of the Eore- 
closure Crisis. And I and Lamar Smith want to begin with some 
observations. You know, reports began to surface about fraudulent 
foreclosure documentation issues several months ago. In The Wash- 



3 


ington Post, the comment was, The Nation’s Overburdened Fore- 
closure System is Riddled With Faked Documents, Forged Signa- 
tures and Lenders Who Take Shortcuts Reviewing Borrowers Files. 
We learned about the robo-signers that mortgage servicers utilize 
who sign off on thousands of foreclosure documents a month with- 
out ever verifying the accuracy of the information contained in 
those statements. And there have been other reports. Servicers 
seeking to foreclose on properties when they lacked proof of title to 
do so. Affidavits notarized outside the presence of the signer. 
Notarizations by individuals who had no legal authority to do so. 
Affidavits asserting conflicting facts signed by the same individual. 
Unfortunately, this problem is really not news to us. 

In 2007, the Commercial and Administrative Law Subcommittee 
of this Committee received testimony from one of the Nation’s most 
respected consumer bankruptcy practitioners about the problems of 
mortgage lenders foreclosing without having documentation to sup- 
port any entitlement to do so. 

So we are here today not just about faulty paperwork problems, 
and about the need to stop the flood of unnecessary foreclosures 
that is ravaging across this Nation, our neighborhoods, commu- 
nities, towns and cities. 

And so we have three issues that are in the front of my mind 
as we proceed: What caused the current foreclosure problem? Ini- 
tially, predatory lending practices and lax lending standards played 
a major role. Some lenders specifically targeted minority commu- 
nities by pushing families into high interest rate mortgages that 
they could obviously not afford, a sort of form of reverse redlining. 

And so this practice devastated communities of color across the 
Nation and created a higher incidence of foreclosures. As a matter 
of fact, many economists have attributed the subprime mortgage 
practice as what triggered the whole bubble collapsing. For exam- 
ple, one out of every eight Wells Fargo loans in predominantly 
Black neighborhoods have gone into foreclosure compared with one 
in 59 such loans in White neighborhoods. As these subprime mort- 
gages, of course with escalating interest rates, matured, home- 
owners couldn’t any longer afford the mortgage payments and 
began to default. And as more homes fell into foreclosure, the 
prices of homes in surrounding areas obviously became more de- 
pressed. 

And what exacerbated all of this was, in some places, the mas- 
sive loss of jobs. Take Detroit, for example, where with the collapse 
of the automobile industry this exaggerated and further empha- 
sized home loss because a lot of people lost their homes because 
they lost their jobs and foreclosure was inevitable. But even prior 
to the recent recession, many working families found it difficult to 
meet their housing obligations. And after the latest recession, the 
bottom fell out of the housing market, the value of home prices fell 
even more precipitously in many areas of the U.S. Many families 
as a result are now struggling to repay mortgages for homes that 
are worth less than what they owe. They are under water. And the 
crisis has been compounded by the lending industry’s steadfast re- 
fusal to modify home mortgages to save them from foreclosure. 

Ironically, many of the beneficiaries of the stimulus and TARP 
and bailout are still not lending money to small homeowners. As 



4 


of last year, 2 V 2 million homes were lost to foreclosure. Current 
projections estimate that by the time this foreclosure crisis abates, 
as many as 13 million homes will ultimately be lost to foreclosure. 
And yet on Wall Street, mortgage lenders and servicers and Fannie 
Mae and Freddie Mac, all of whom received taxpayer bailouts to 
the tune of billions of dollars over the last 2 years, have, in many 
instances, turned a blind eye toward homeowners in similar finan- 
cial distress. 

Under every program established to date, homeowners must rely 
on the willingness of lenders to modify mortgage terms to save 
their homes. The HAMP, Home Affordable Mortgage — Home Af- 
fordable Modification Program, a $75 billion incentive program de- 
signed to encourage participating lenders to sign a contract with 
the United States Treasury to modify mortgages, has had few — 
well, I won’t say they haven’t had any result, but it is so modest 
it is hardly worth talking about. Out of many millions of homes lost 
or headed to foreclosure, half, less than half a million mortgages 
have been successfully modified under this program. 

We hear report after report that homeowners are drowning in 
bank bureaucracy with lost documents, unexplained rejections, and 
some of them just closed down, period, and vanished. You can’t 
even get them on the phone, and they aren’t even in their business 
location any longer. And so many homes are rushed through fore- 
closure without homeowners having a realistic opportunity to re- 
structure the mortgage. 

Now, in light of these disclosures about inaccurate foreclosure 
documents, we have to ask, do these institutions legally have the 
right to foreclosure at all? And that has been answered by at least 
one Federal judge who will testify about the numerous documenta- 
tion problems encountered at the trial court level. 

I will skip — let me conclude. The question that overrides the 
hearing is what can we do about the foreclosure problem and the 
continuing problem of high unemployment. And I will put some of 
those answers into the record. And thank you for your indulgence. 
And now I would like to yield to Lamar Smith of Texas, the Rank- 
ing Member of the House Judiciary Committee. 

Mr. Smith. Thank you, Mr. Chairman. The past few years have 
been a trying time for the U.S. housing market and American 
homeowners. The foreclosure crisis has had a devastating impact 
on the economy and regrettably has led to many Americans losing 
their homes. The crisis has its roots in poorly underwritten loans 
and unconventional mortgage products and has been compounded 
by high unemployment. Over the past few months, a new problem 
has emerged in the foreclosure crisis, the scandal that has erupted 
around the widespread mismanagement of foreclosure documents 
by lenders and mortgage servicers. The corners they have cut to 
keep up with the large and growing numbers of foreclosures are in- 
excusable. 

For many Americans, a house will be the biggest purchase they 
ever make and their single largest asset. Given the importance of 
the purchase of a home, only strict compliance with State fore- 
closure laws is acceptable. Accordingly, regardless of whether bor- 
rowers have defaulted on their obligations, they are entitled to due 
process in foreclosure. This scandal is about more than sloppy and 



5 


careless foreclosure practices, it is about due process, private prop- 
erty rights and the rule of law. 

Fortunately, it appears the vast majority of defects and fore- 
closure documents that have been uncovered are technical in na- 
ture. The evidence indicates that despite the many unacceptable 
technical errors that have been made by and large foreclosures 
have only occurred in cases in which the homeowners were in de- 
fault. In many instances, foreclosures take more than a year from 
start to finish giving the borrower ample time to discover any flaws 
in the documents supporting foreclosure. And in about one-third of 
all cases, borrowers have already abandoned their homes before 
their foreclosure process has even started. This does not minimize 
the seriousness of the industry wide mismanagement of foreclosure 
documents, but it does demonstrate that we must be careful in our 
response to the scandal. 

The housing market is showing some signs of recovery. We need 
to avoid setting the recovery back by overreacting. Foreclosure 
rules and requirements are determined under State law. For this 
reason, attorneys general in all 50 States and the District of Co- 
lumbia have launched an investigation into the foreclosure docu- 
mentation problems. And I thank the State AGs for their efforts. 
It appears that their investigations may result in a settlement with 
mortgage servicers leading to a nationwide fund to help any home- 
owners who did suffer wrongful foreclosures. 

However, the foreclosure document scandal has led some, includ- 
ing some Members of this Congress, to call for a nationwide mora- 
torium on foreclosures. This approach, in my judgment, would be 
a mistake. All indications are that a nationwide moratorium would 
cause further harm to the already depressed U.S. housing market. 
Lenders and servicers must be held accountable for their mistakes, 
but we must also maintain the stability of the housing market. A 
moratorium on foreclosures will only serve to continue the signifi- 
cant uncertainty that this controversy has raised for potential 
home buyers and the housing market. At a time when purchases 
of foreclosed homes account for 25 percent of all sales, halting fore- 
closures could harm the economy and slow down the modest recov- 
ery further worsening unemployment. 

The current foreclosure crisis has been devastating. No one 
wants to see these people lose their homes. Foreclosures not only 
uproot families and cause hardship to borrowers, but they also de- 
press community property values and result in severe losses for 
lenders and investors. But now is the not the time for a quick fix 
approach like foreclosure moratoriums or allowing modification of 
home mortgages in bankruptcy. These so-called solutions will only 
cause more harm to the country’s economy, and, in fact, delay the 
recovery. We need to focus on restoring the integrity of the fore- 
closure process in a manner that protects homeowners and does not 
disrupt the functioning of the housing market. Thank you, Mr. 
Chairman. I yield back. 

Mr. Conyers. Thank you, Lamar Smith. Is there any Member 
that is inclined toward just a brief observation? Let’s see. I will 
start off with Mr. Cohen of Memphis, Tennessee. 

Mr. Cohen. Thank you, Mr. Chairman. First of all, I want to say 
I appreciate your opening statement. And I concur on so many of 



6 


your remarks and you have well gone through the history of the 
Committee and my Subcommittee, which I thank you for appoint- 
ing me the Chair of, Commercial and Administrative Law, and the 
work we have done and we have looked at in this Congress. And 
I want to thank you for what you have done. I guess it is going 
to be the last Judiciary Committee for a while where you are 
Chairman. And you have been a great Chairman and shown great 
ability to work with both sides. And I have learned from you in my 
opportunity to be a Subcommittee Chair in doing that and trying 
to be fair to both sides and maintain. And I always think about 
how would Chairman Conyers handle this. 

And I am sure that Ranking Member Smith has done the same 
thing, and you prepared him well. With that said, the subject mat- 
ter is one that is so important to the American people. And I think 
this subject matter is probably as much as anything else what 
caused the change in the elections that took place. The American 
public was angry that nobody worried about the integrity of the 
lending practices or the integrity of the bankers or the integrity of 
the Wall Street folks who bundled all these mortgages and 
securitized them and made them so complex that nobody knew 
where they originated and made the problem of dealing with these 
foreclosures so difficult. 

Rather than worry about the integrity of that process, we, and 
I did it too, because it was the right thing to do, and Chairman 
Frank said so appropriately, that it was what would be considered 
collateral benefit, that sometimes you have to help the people that 
caused the harm to help the whole system. And the collateral ben- 
efit went to Wall Street. But we put 700 and something billion dol- 
lars what was a bipartisan effort. President Bush’s idea, and Sec- 
retary Paulson’s, and a goodly number of Republicans and Demo- 
crats joined together to make a very difficult vote, but one that was 
necessary, but one that took care of keeping in place the people 
who perpetrated and were responsible for the foreclosure crisis, the 
unemployment situation in this country, and almost put this coun- 
try and the world’s economies under water. 

We took care of those people who got the major salaries and the 
major bonuses and are living just as well on Wall Street; we didn’t 
put any of them in jail, none of them suffered in any way whatso- 
ever for morally reprehensible conduct and who benefited finan- 
cially, to a great extent, and whose lives are better than ever. And 
yet the homeowner and the unemployed who need unemployment 
insurance and who need help with their mortgages are considered 
to be detritus, they are considered to be collateral damage, and no- 
body has cared about them. 

But the fact is the Democratic Congress, and there probably were 
a few Republican votes with us, but predominately, this democratic 
Congress has cared and tried to help. I think that the modifications 
in bankruptcy is the answer, and it is so important, because noth- 
ing else has worked. And there needs to be somebody with a lever 
to help the homeowner, and nobody does. These people are the for- 
gotten victims of all of this economic fallout. They are the purple 
hearts of this economy, and they are being forgotten about in terms 
of help with their foreclosures. And, yes, we might have to do some 
things that are unusual, but they have been put in this position by 



7 


people who made subprime loans, who made deals that maybe they 
were too good to be true, but they made those offers and they were 
wrong and got people into loans and obligations greater than they 
could afford; they have lost their monies, their homes and a lot of 
excess cost that they otherwise would not have incurred if they 
were not lured into it. 

Many have lost their jobs. And now that they need unemploy- 
ment benefits, there are people that don’t want to give it to them. 
What you do onto the least of thee you do onto me, and for those 
who have given much, much is expected. And at this time when 
Christians and Jews and Muslims all should be thinking about 
what we are privileged to have and those that may not be privi- 
leged to have were not doing it. We are thinking about what this 
Congress has seen and this Administration has been seeing, wrong- 
fully so, I believe, by the public, is caring about those that have 
much and taking care of those that caused the problem and keep- 
ing them in their high lofts in Wall Street, and not caring about 
the little fellow. 

And that is what we need to do. And we need to have modifica- 
tions to mortgages and we need to act. And if we err, we need to 
err on the side of the people who have been injured and harmed. 
With that, I yield back the remainder of my time. And thank you, 
Mr. Chairman. 

Mr. Conyers. Thank you. Darrell Issa, would you care for a brief 
comment? 

Mr. IssA. I would. Chairman. Seldom do I get the opportunity to 
say to a Chairman of the other party how much I have enjoyed my 
tenure under your leadership, but today is one of those days. You 
have been fair, you have been firm and I am not going to miss you 
because I know you will be right there just one over. And I look 
forward to serving with you in the next Congress. With that, I will 
correct you on one thing in your opening statement, Mr. Chairman. 
You used the word billions for bailout, when, in fact, it is trillions. 
Freddie and Fannie, we took full faith obligation for those entities. 

So, in addition to the 140 or so billion that they have been hand- 
ed permanently, we are on the hook for every penny, something 
that I hope in the legal terms here, in the financial terms that the 
Committee on Financial Services and on the money, follow the 
money terms of the Government Oversight Committee, we can 
bring that to an end and never again put full faith behind some- 
body else’s profit taking. 

When we talk about Wall Street, let’s remember Freddie and 
Fannie are Washington, D.C. Entities and not, in fact. Wall Street. 

Mr. Chairman, the Home Affordability — Affordable Modification 
Program, or HAMP, must be ended. In its 20 months it has proven 
to delay the inevitable, it has proven to raise hopes only to be 
dashed, it has proven to be able to renegotiate only to have fore- 
closure return at every bit as high a rate. Mr. Chairman, in the 
20 or so months that HAMP has been actively negotiating, they 
have — of the nearly 3 million opportunities that would have been 
granted, about IV 2 million have begun; 1,395 trials have started; 
719,000 or roughly half have been rejected; and 483,000 have been 
made permanent, of which nearly 10 percent have already re- 
defaulted and expect that to rise three to fourfold. 



8 


During that period of time, the Obama administration, I believe 
in good faith, employed $22 billion in first time home buyer tax 
credits. Mr. Chairman, my Committee next door follows the money, 
this Committee follows the law. In this case, when you look at $22 
billion in first time home buyer credits, without looking at what 
the true price of those homes should be, without those homes hav- 
ing reached their value, what we have done is had a new round of 
thousands or actually millions of new home buyers buy homes that 
are still sinking in value. 

We must not complain about the number of foreclosures or sales, 
we must, in fact, look at HAMP and other programs and say, what 
are they doing to increase, dramatically increase the number of 
foreclosures if appropriate and legally reviewed, which is certainly 
something that has not yet been proven that the banks are willing 
to do accurately at 100 percent level, but also the number of short 
sales, voluntary abandonments and the like. 

The truth is the sooner that a property is transferred to a new 
owner, able to make the payments, able to maintain the home, the 
sooner that the precipitous drop in value stops. Abandoned homes, 
homes in which a home has been rented to somebody who is no 
longer the owner and homes which are being stripped systemically 
because there is a profit taking even after the home is in fore- 
closure, all of this dramatically reduces the value of the home. 
Every neighborhood in my community in which a home is in fore- 
closure it can be seen from the outside that the maintenance has 
stopped, that the lawns have gone dry and the like. 

This is what we as Committees of jurisdiction must work on. The 
swift, accurate and legal execution of those mechanisms now exist- 
ing or which may be created that will allow for the proper value 
of a home to be assessed, a homeowner able to meet that value, 
able to remain through some mechanism and those not able to 
quickly able to move on to appropriate housing, and that house, 
home, apartment, condo or the like, able to be put back into cur- 
rent maintenance. 

Mr. Chairman, the tragedy in America today are the homes that 
sit idle, abandoned or in foreclosure and in ruin. I hope that in the 
next Congress, we will continue to work on a bipartisan basis to 
recognize that is what is stopping America’s value of homes from 
reaching bottom, reaching a point in which people can make sound 
investments and begin rising. 

I look forward to this hearing and to the next Congress of us 
working together to solve it. I thank the Chairman for his leader- 
ship, the Ranking Member for his leadership and yield back. 

Mr. Conyers. Thank you, Darrell Issa. The gentleman from Flor- 
ida, Ted Deutch. 

Mr. Deutch. Thank you, Mr. Chairman. And Mr. Chairman, I 
would like to thank you first for the opportunity you have given me 
in the short time 

Mr. Conyers. Excuse me. Mr. Quigley, do you mind if he goes 
ahead of you? 

Mr. Quigley. Yes. 

Mr. Deutch. Another opportunity that you and Mr. Quigley have 
provided in the short time that I have been here. I would also like 
to take time to recognize your tireless efforts on this issue. In re- 



9 


forming the foreclosure process and ensuring that it treats home- 
owners fairly and justly, this hearing has particular significance 
from my State of Florida with the second highest number of fore- 
closures in the country and where half of all borrowers owe more 
than their properties are worth. 

The collapse of our Nation’s economy and the meltdown of the 
housing market have unveiled systemic problems in the mortgage 
foreclosure system. There is much blame to go around, but it is in- 
cumbent upon us to work on solutions so that foreclosures are proc- 
essed in a fair and equitable manner. Railroading homeowners 
through foreclosure processes that are quickly cobbled together to 
relieve court dockets of mounting foreclosures can and, as we have 
seen, often do disregard due process rights of homeowners. 

In Florida, the State legislature has created foreclosure only in 
courts, meant to reduce the mounting backlog of more than 300,000 
foreclosure cases by the end of 2011. In an effort to quickly relieve 
court dockets, however, evidentiary hearings are rarely provided to 
examine whether documents are correct or fraudulent. Hearing 
times are sometimes as short as 15 seconds; do you live in the 
home? Are you behind in your payments? And lawyers representing 
the banks often do not appear in court. 

In addition, while the foreclosure proceedings move forward a 
mediation process begins. The dual track system in Florida often 
confuses homeowners with court and mediation documents and cre- 
ates confusion for the borrower, whether they need to have legal 
representation at the foreclosure process, in the mediation process 
or both. This is not limited to Florida, and I hope that we will have 
an opportunity to hear from the panelists today. This accelerated 
judicial review system is fraught with opportunities for fraud and 
for the due process rights of homeowners to be trampled. 

In addition, the Federal Government’s loan modification pro- 
grams fail to provide necessary incentives for banks to engage in 
the scope of large scale modifications that are necessary to fix the 
broken mortgage system. And with waves of foreclosures con- 
tinuing to inundate the court system, Mr. Chairman, more needs 
to be done to keep people in their homes, to root out fraud and to 
protect the due process rights of people going through foreclosure. 

I think that is what we will have an opportunity to pursue here 
today. And I thank you for holding this hearing and giving me this 
opportunity, and I yield back. Thank you, Mr. Chairman. 

Mr. Conyers. The Chair recognizes a senior Member of the Com- 
mittee, the gentleman from North Carolina, Howard Coble, who is 
a Ranking Member on at least one of the Subcommittees. 

Mr. Coble. Thank you, Mr. Chairman. And I will be very brief. 
I want to associate myself with the comments of the distinguished 
gentlemen from California when he used two four letter “F” words 
to describe you, and those words were firm and fair. And I reiterate 
what Darrell said about that. I also want to associate myself with 
Darrell’s comments. He is still here. When he said 

Mr. IssA. Keep talking. 

Mr. Coble. I am saying it favorably. When he said, Mr. Chair- 
man, one of the problems, and we all know this, is abandoned or 
vacant houses. When houses lie vacant and/or abandoned crime in- 



10 


evitably follows. So we need to be aware of that. And I thank you 
again for your leadership, Mr. Chairman, and yield back. 

Mr. Conyers. The gentleman from Illinois, Michael Quigley. 

Mr. Quigley. Thank you, Mr. Chairman. Much has been said al- 
ready, I won’t add to that, except to, I guess, a message to the fi- 
nancial institutions. In my view, this recent round of mistakes only 
adds insult to injury. But like many Members, my office in Chi- 
cago, our district offices, try to help our constituents on a case-by- 
case basis, those who are dealing with foreclosure. And there are 
many not-for-profit organizations in my city of Chicago that try to 
help people as well. 

To sum up, how they have been treated by the financial institu- 
tions in their attempts to modify, they have been lied to, their in- 
formation has been delayed, their information they received is in- 
consistent, incorrect and they have been abused a second time. 
This is often because of the trust involved here created an even 
worse situation for them because it has pushed the time clock well 
past their ability to catch up. 

So what I would try to suggest to those institutions, and they 
haven’t even treated our staffs well, they haven’t returned phone 
calls. My colleague, Jan Schakowsky, and I had to have a forced 
meeting in which we said to these banks you need to return our 
phone calls, you need to respect our constituents who are facing 
foreclosure. It has gotten that bad. 

So with all due respect, I would suggest that they need to — the 
respect that they get from the Members and the help they get from 
Congress, at the very least, ask them to treat our constituents, 
their clients, with that same respect. It has not happened, and I 
suggest that its time has come. Thank you. 

Mr. Conyers. Thank you. The Chair is pleased to recognize Bob 
Goodlatte, a senior Member of the Committee from Virginia. 

Mr. Goodlatte. Mr. Chairman, thank you very much, and thank 
you for holding this hearing on the Effect of Foreclosure, Its Causes 
and Effects in the Current Foreclosure Crisis. Currently, Federal, 
State and local law enforcement agencies are investigating the re- 
cently uncovered irregularities in the foreclosure processes used by 
some banks. These irregularities are very troubling and raise many 
questions about the validity of some foreclosures, as well as the va- 
lidity of other chain of title transactions. 

Or it is important that we meticulously gather the actual facts 
so that we can best solve the problems, broad accusations not 
backed by the facts will do little to help those who have been 
harmed by these errors. 

In addition, any solutions to this problem should be tailored to 
the actual problem and not be so broad as to punish banks, includ- 
ing smaller community banks that likely play by the rules and 
completed the paperwork properly. 

And I would like to associate myself with the comments of the 
gentleman from North Carolina, Mr. Coble, who noted that there 
are ongoing problems. If we simply have this entire system break 
down, there are many related problems that occur in terms of va- 
cant houses, in terms of disruption of our financial markets, in 
terms of other things, it is much more important that we get this 
focused on making sure that each individual who is the subject of 



11 


a foreclosure is treated fairly than it is that we do something to 
put a halt, as has happened in some places, to the entire fore- 
closure process for any lengthy period of time. Because that is 
going to have a far-reaching impact, not just on the individuals di- 
rectly affected, but by every homeowner in the country and every- 
one who desires to become a homeowner in the country. 

So I look forward to hearing from our expert witnesses today on 
this very important issue. And again I thank you, Mr. Chairman. 

Mr. Conyers. I thank you. We have with us on the panel, and 
we welcome them and commend them for their patience. Judge 
Winslow, Ms. Julie Williams, Mr. Ed DeMarco and Ms. Phyllis 
Caldwell, who is Chief of the Homeownership Preservation Office 
for the Department of Treasury. She is also a former president of 
the Washington area — the Washington Area Women’s Foundation, 
President of Community Development Banking for Bank of Amer- 
ica, and we welcome her as our first witness. And we would have — 
without objection, we will have all the statements entered into the 
record. And we will start off Ms. Caldwell with you. 

Mr. Goodlatte. Mr. Chairman, I hate to interrupt, but it has 
been brought to my attention that your good friend and the gen- 
tleman from Texas, Louie Gohmert, wanted to say a few words. 

Mr. Conyers. Judge Gohmert, excuse me, I didn’t — I wasn’t 
aware. The gentleman from Texas is welcome and recognized be- 
fore we begin our witnesses. Please, forgive me. 

Mr. Gohmert. Because of my warm feelings when I waved ear- 
lier, it may have been seen as a gesture of howdy. But also your 
recognizing me underscores what Darrell Issa had said, we have 
disagreed politically over many things, but you have never been 
anything but gracious as Chairman toward me personally, and I 
will always be grateful. Thank you. Chairman. I did want to ad- 
dress a couple of things. My friend from across the aisle, that, be- 
cause there is more Democrats, actually sits right next to me on 
this side of the aisle, had commented about the Wall Street bailout. 
And I know that things were well intentioned, I know it was under 
the Bush administration and I know that President Bush was re- 
sponding to the urgency pushed on him by Treasury Secretary 
Paulson as Paulson pushed for the Paulson poultice to solve his 
friends on Wall Street’s problems, but what happens when this 
body steps in to interrupt the rules, to interrupt the laws and the 
system that has been put in place, it sends things spiraling. 

So I disagree with my friend from Tennessee, it was not nec- 
essary to spend $700 billion for a major green poultice to be placed 
on the problem on Wall Street. It arose because of greed. There 
were people taking advantage of the situation that had come up 
with a ridiculous way in which to gamble legally by putting to- 
gether mortgages so you couldn’t review the individual mortgages, 
you bought a package. And then you would buy insurance called 
credit default swaps. But we wouldn’t require that you put any- 
thing aside in reserve to pay the insurance in the event the insur- 
able event occurred. Those were all big mistakes. But you don’t 
rush in and completely redesign the system by rewarding people’s 
greed and say here is a green poultice to put on your hurt, you 
make them go through the system as it was set up called bank- 
ruptcy that was provided for in the Constitution and which was ac- 



12 


tually set in place when people realized the financier of the revolu- 
tion, Mr. Morris, was in debtor’s prison. And he was let out of pris- 
on once the bankruptcy laws were put in place. 

AIG should have gone through, most of their departments were 
making money, let them go through reorganize. Instead of reward- 
ing Goldman Sachs for their greed, they should have gone through 
bankruptcy. We created a bigger problem when we rushed in and 
rewarded the greed there. 

Now, with foreclosure there are rules in place. And if people have 
not followed the rules in foreclosing, there need to be consequences 
that are set forth under the rules and in the court system. But by 
playing by the rules and not changing them after people have 
messed up, then we give certainty to the system and the economy 
heals much quicker than if we interrupt. 

And it brings me to what really drove me off the bench as a dis- 
trict judge into wanting to legislate. And knowing that legislating 
from the bench was improper, I left and ran for the opportunity. 
But I found myself sentencing more and more women who were 
single moms who were charged with felony welfare fraud. And 
when you look to the heart of every case, it seemed to arrive from 
the same thing, or derive from the same thing. And that was that 
the great society legislation was so well intentioned they saw single 
moms, deadbeat dads not contributing, so let’s help these single 
moms, let’s give them a check for these children they are having 
out of wedlock where the deadbeat dad doesn’t help. 

What has happened over the last 45 years is we have lured 
young women out of high school into having babies only to find 
they can’t live off that little check for one child, and then they 
would have another and another, the ones that would come before 
my court for welfare fraud. And they would finally realize, I am 
never going to get out of this rut, so maybe if I either sell drugs 
or if I get a job and don’t tell the Federal authorities, maybe I can 
climb out of this hole. And it just seemed immoral that we, the well 
intentioned, as a Confess provided incentives to lure these young 
women away from their God-given potential into a rut from which 
there was no hope for most of them for getting out. 

We should not be satisfied with good intentions. We need to look 
at the bigger picture, give incentives to reach potential, not lure 
people into a rut of indentured servitude to this Congress and to 
this Washington. The same thing with unemployment. Given 99 
weeks, my goodness, if you can’t find a job in 26 weeks in the area 
in which you are trained, then the incentives ought to be to retrain 
for a place where there is jobs, not let you sit home dreading the 
consequences for a year and a half later where there is still no jobs. 
That seems immoral to me. 

And I am very concerned that we don’t do something well inten- 
tioned with regard to foreclosures that end up doing more harm 40 
years, 45 years from now, as I think we have done from the great 
society. We need to incentivize proper conduct, we need to enforce 
the fact that rules should be followed. And whether you are a fore- 
closure company, a mortgage company or a borrower, if you haven’t 
played by the rules, then there is consequences. 

And close with this example. A stockbroker said, or a stockbroker 
friend of his from California told him he needs the government to 



13 


step in because he is going to lose his home. He has a $700,000 
home and he can’t make the payments. He said, well, we make ba- 
sically the same thing, how can you afford a $700,000 home? He 
said, well, we had bought one before on a 12-month note, interest 
only at the end of the 12 months, and we could turn it and make 
a nice profit. So we did it with this one and now we can’t make 
the interest payments and we are about to lose our home if the 
Federal Government doesn’t step in. 

They should have bought a $300,000 or $400,000 home instead 
of overstepping, and I don’t think Congress should step in and help 
this guy keep his $700,000 home. We need to buy within our 
means, this Congress needs to act within its means and I think the 
world will be a better place because of it. Thanks for indulging me. 
Chairman. 

Mr. Conyers. Ms. Caldwell, you are still the first witness at this 
panel. And we are pleased that you will start off our discussion. 

TESTIMONY OF PHYLLIS CALDWELL, CHIEF, HOMEOWNER- 

SHIP PRESERVATION OFFICE, UNITED STATES DEPART- 
MENT OF THE TREASURY 

Ms. Caldwell. Thank you. Chairman Conyers, and Members of 
the Committee, again, as we discussed, the foreclosure problems 
that have recently come to light underscore the continued critical 
importance of the Making Home Affordable program launched by 
Treasury of which HAMP is a part. Preventing avoidable fore- 
closures through modifications and other alternatives to foreclosure 
continues to be a critical priority. Foreclosures dislocate families, 
disrupt the community and destabilize local housing markets. Over 
the last 20 months, we have developed rules and procedures to fa- 
cilitate meaningful modifications and other foreclosure alternatives. 
We have urged servicers to increase staffing and improve customer 
service. We have developed specific guidelines and certifications on 
how and when homeowners must be evaluated for HAMP. 

HAMP has strong compliance mechanisms in place to ensure 
that servicers follow program guidelines. Treasury has built proce- 
dural safeguards and appropriate communication standards within 
HAMP to minimize those instances where borrowers are dual- 
tracked, where they are being evaluated for HAMP at the same 
time they are being put through the foreclosure process. 

Specifically, program guidelines require participating mortgage 
servicers of nonagency loans to evaluate homeowners for HAMP 
modifications before referring those homeowners to foreclosure; 
suspend any foreclosure sales against homeowners who have ap- 
plied for HAMP modifications while their applications are pending; 
freeze all pending foreclosure actions when a borrower makes the 
first payment on a fully verified income trial plan; evaluate wheth- 
er homeowners who do not qualify for HAMP or who have fallen 
out of HAMP qualify for alternative home retention or private 
modification programs; evaluate whether homeowners may qualify 
for a short sale or deed in lieu of foreclosure and provide a written 
explanation to any homeowner who is not eligible for HAMP modi- 
fication and to delay the foreclosure sale for at least 30 days after- 
wards to give the homeowner time to appeal. 



14 


Servicers may not proceed to foreclosure sale until they have 
tried these alternatives. They must also issue a written certifi- 
cation to their foreclosure attorney or trustee stating, “All loss miti- 
gation alternatives have been exhausted and a nonforeclosure op- 
tion could not be reached.” 

On October 6th, Treasury clearly reminded servicers of this exist- 
ing HAMP rule. And we have instructed our compliance team to re- 
view the ten largest servicers, processes and procedures for com- 
plying with these guidelines. If we find incidents of noncompliance. 
Treasury will direct servicers to take corrective action, which may 
include suspending those foreclosure proceedings and reevaluating 
the affected homeowners for HAMP. 

In terms of compliance, it is important to remember that al- 
though Treasury administers HAMP, it does so through a vol- 
untary contract with the servicer versus regulatory or enforcement 
agency authority. Thus, our compliance efforts are focused on en- 
suring that servicers are following the contractual requirements of 
their servicer participation agreements. Compliance remedies have 
included reevaluating loans for HAMP eligibility, resoliciting bor- 
rowers, enhancing servicer processes and providing additional 
training to staff. 

To date, almost 1.4 million homeowners have started trial modi- 
fications and 520,000 have started permanent modifications. These 
homeowners have experienced a 36 percent median reduction in 
their mortgage payments or more than $500 a month. Consider 
that in the first quarter of 2009, nearly half mortgage modifications 
increased borrowers monthly payments or left payments un- 
changed. By the second quarter of 2010, 90 percent of mortgage 
modifications for the borrower lowered monthly payments. Home- 
owners today have access to more sustainable foreclosure preven- 
tion solutions. And HAMP uses taxpayer resources efficiently. Its 
pay-for-success design supports borrowers who are committed to 
staying in their homes and making monthly payments by paying 
out servicer, borrower and investor incentives over 5 years when 
the loan remains current. And the investor, not the taxpayer, re- 
tains the risk of borrower payment. 

In conclusion, we believe the foreclosure problems underscore the 
continued need for servicers to focus on evaluating homeowners for 
all home retention options starting with HAMP. We appreciate the 
efforts of both Members of this Committee and our partners in the 
housing community in holding servicers accountable and improving 
HAMP’s design and performance. I look forward to taking your 
questions. Thank you. 

[The prepared statement of Ms. Caldwell follows:] 



15 


Prepared Statement of Phyllis Caldwell 


Embargoed until delivery 


Written Testimony of Phyllis Caldwell, 

Chief of Homeownership Preservation Office, 

U.S. Department of the Treasury 
Hearing before the House Committee on the Judiciary on 
“Foreclosed Justice: Causes and Effects of the Foreclosure Crisis” 

December 2, 2010 

Chairman Conyers, Ranking Member Smith, and Members of the Committee, thank you for the 
opportunity to testify today regarding issues surrounding mortgage servicing. This testimony 
will cover two key areas: first, the steps we are taking to ensure that servicers participating in the 
Making Home Affordable (MHA) program are adhering to program guidelines in light of the 
recent foreclosure issues, and second, the accomplishments of MHA to date and its impact on 
mortgage servicing. 

The reports of “robo-signing”, faulty documentation and other improper foreclosure practices by 
mortgage servicers are unacceptable. If servicers have failed to comply with the law, they 
should be held accountable. The Administration is leading a coordinated interagency effort to 
investigate misconduct, protect homeowners and mitigate any long-term effects on the housing 
market. While Treasury does not have the authority to regulate the foreclosure practices of 
financial institutions, nor to ensure that those practices conform to the law, it is working closely 
with agencies that do have such authority. 

The Financial Fraud Enforcement Task Force, a broad coalition of law enforcement, 
investigatory, and regulatory agencies that brings together more than 20 federal agencies, 94 
U.S. Attorneys Offices, and dozens of state and local partners, is working to ensure that 
foreclosure practices are thoroughly investigated and any criminal behavior is prosecuted. The 
Federal Housing Administration (FHA) has been reviewing servicers of loans it insures for 
compliance with loss mitigation requirements. Additionally, the Office of the Comptroller of the 
Currency has directed all large national bank servicers to review their foreclosure management 
processes - including file reviews, affidavit processing, and signatures - to ensure that the 
processes are fully compliant with all applicable state laws. The other independent banking 
regulatory agencies are doing similar reviews of institutions under their jurisdiction. Attached to 
my testimony is a fact sheet providing more detail concerning the activities of the coordinated 
interagency effort. 

Because MHA and its first lien program, the Home Affordable Modification Program (HAMP), 
are pre-foreclosure programs, the recent reports of robo-signing of affidavits and improper 
foreclosure documentation do not directly affect the implementation of HAMP. But these 
documentation failures reflect the fact that servicers did not have the proper resources in place, 
nor did they have procedures and controls in place to prevent this crisis. As we have learned in 
implementing HAMP, servicers were historically structured and staffed to perform a limited 
role — primarily collecting payments. They did not have the systems, staffing, operational 
capacity or incentives to engage with homeowners on a large scale and offer meaningful relief 
from unaffordable mortgages. 



16 


The foreclosure problems underscore the continued critical importance of the Making Home 
Affordable Program launched by the Obama Administration. Preventing avoidable foreclosures 
through modifications and other alternatives to foreclosure continues to be a critical national 
priority. Foreclosure is painful for homeowners; it is also costly to servicers and investors. 
Foreclosures dislocate families, disrupt the communities, and destabilize local housing markets. 
For this reason, the Obama Administration launched the Making Home Affordable program in 
the spring of 2009, of which FLAMP is a key component. HAMP is intended to prevent 
avoidable foreclosures by providing financial incentives to servicers, investors and borrowers to 
voluntarily undertake modifications of mortgages for responsible homeowners in a way that is 
affordable and sustainable over time. In cases where a modification is not possible, the 
participating servicers must consider other alternatives to foreclosure. 

As a result, throughout the last 20 months, we have worked to develop systems and procedures to 
ensure that responsible homeowners are offered meaningful modifications and other foreclosure 
alternatives. To remedy servicer shortcomings, we have urged servicers to rapidly increase 
staffing and improve customer service. We have developed specific guidelines and certifications 
on how and when borrowers must be evaluated for HAMP and other loss mitigation options prior 
to foreclosure initiation. We have also continued our compliance efforts to ensure borrowers are 
fairly evaluated and that servicers conduct their operations in accordance with Treasury 
guidelines. MHA has strong compliance mechanisms in place to ensure that servicers follow our 
program’s guidelines. 

FTAMP Procedural Safeguards and Compliance Efforts 

Treasury has built numerous procedural safeguards in HAMP to avoid foreclosure sales. 
Specifically, program guidelines that became effective on June T’^ require participating mortgage 
servicers of non-GSE loans to: 

• Evaluate homeowners for HAMP modifications before referring them for foreclosure. 

The focus here is on early intervention. Servicers must reach out to all potentially eligible 
borrowers when they are only two months delinquent and there is a still a viable 
opportunity to save the loan, 

• Suspend foreclosure sales against homeowners who have applied for HAMP 
modifications, while their applications are pending; 

• Freeze all pending foreclosure actions when a borrower makes the first payment under a 
fully verified trial plan. 

• Evaluate whether homeowners who do not qualify for HAMP (or who have fallen out of 
HAMP) qualify for alternative loss mitigation programs or private modification 
programs; 

• Evaluate whether homeowners who cannot obtain alternative modifications may qualify 
for a short sale or deed-in-lieu of foreclosure; and 

• Provide a written explanation to any borrower who is not eligible for modification and 
delay foreclosure for at least 30 days to give the homeowner time to appeal. 


2 



Servicers may not proceed to foreclosure sale unless and until they have tried these alternatives. 
They must also first issue a written certification to their foreclosure attorney or trustee stating 
that “all available loss mitigation alternatives have been exhausted and a non-foreclosure option 
could not be reached.” On October 6, Treasury clearly reminded servicers of non-GSE loans of 
this existing requirement that they are prohibited from conducting foreclosure sales until these 
pre-foreclosure certifications are executed. It should be noted that the GSEs have similar 
guidelines for their HAMP modifications. 

The MHA compliance program is designed to ensure that servicers are meeting their obligations 
under the MHA servicer contracts for loans where Fannie Mae or Freddie Mac is not the 
investor, and uses a variety of compliance activities to assess servicers from different 
perspectives. Treasury has engaged a separate division of Freddie Mac, Making Home 
Affordable-Compliance (MHA-C), to perform these compliance activities. Employing a risk- 
based approach, compliance activities are performed ranging generally monthly for servicers 
with the largest percentages of potentially eligible borrowers, to at least twice annually for the 
smaller-sized servicers. 

Our compliance activities focus on ensuring that homeowners are appropriately treated in 
accordance with MHA guidelines. As the program has evolved, servicers have adapted their 
processes to incorporate MHA programs. Treasury has implemented non-financial remedies that 
have shaped servicer behavior in order to address the most vital issue: the ultimate impact on the 
homeowner. 

As information regarding irregularities in servicer foreclosure practices arose, Treasury acted 
swiftly and instructed MHA-C to review the ten largest servicers’ internal policies and 
procedures for completing these pre-foreclosure certifications before initiating the foreclosure 
proceedings, and to assess a limited sample of foreclosure sales that have occurred since the 
effective date of the guidance. The results of the review are not yet available. However, if 
MHA-C identifies any incidents of non-compliance with H.AMP guidelines. Treasury will direct 
servicers to take appropriate corrective action, which may include suspending foreclosure 
proceedings and re-evaluating the affected homeowners for HAMP, as well as undertaldng 
changes to servicing processes to help ensure that HAMP guidelines are followed prior to 
initiating the foreclosure process. 

HAMP’s Accomplishments and Its Impact on the Mortga2e Industry 

To date, HAMP has achieved three critical goals: it has provided immediate relief to many 
struggling homeowners; it has used taxpayer resources efficiently; and it has helped transform 
the way the entire mortgage servicing industry operates. 

Twenty months into the program, close to 1.4 million homeowners have entered into HAMP 
trials and experienced temporary reductions in their mortgage payments. Of these, almost 
520,000 homeowners converted to permanent modifications. These homeowners are 
experiencing a 36 percent median reduction in their mortgage payments — averaging more than 
$500 per month — amounting to a total, program-wide savings of nearly $3.7 billion annually for 
homeowners. 



18 


Early indications suggest that the re-default rate for permanent HAMP modifications is 
significantly lower than for historical private-sector modifications — a result of the program’s 
focus on properly aligning incentives and achieving greater affordability. For FIAMP 
modifications made in the fourth quarter of 2009, at six months, fewer than 10 percent of 
permanent modifications are 60+ days delinquent. According to the OCC’s Mortgage Metrics 
Report, the comparable delinquency rates for non-HAMP modifications made in the same 
quarter were 22.4 percent. Regarding HAMP re-defaults, the OCC states, “These lower early 
post-modification delinquency rates may reflect HAMP’s emphasis on the affordability of monthly 
payments and the requirements to verify income and complete a successful trial period.” 

Borrowers who do not ultimately qualify for HAMP modifications often receive alternative 
forms of assistance. Based on survey data from the eight largest servicers, approximately one- 
half of homeowners who apply for HAMP modifications but do not qualify have received some 
form of private-sector modification. Less than ten percent have lost their homes through 
foreclosure sales. 

HAMP uses taxpayer resources efficiently. HAMP’s “pay-for-success” design utilizes a trial 
period to ensure that taxpayer-funded incentives are used only to support borrowers who are 
committed to staying in their homes and making monthly payments, and the investor retains the 
risk of the borrower re-defaulting into foreclosure. No taxpayer funds are paid to a servicer or an 
investor until a borrower has made three modified mortgage payments on time and in full. The 
majority of payments are made over a three to five-year period only if the borrower continues to 
fulfill this responsibility. These safeguards ensure that spending is limited to high-quality 
modifications. 

MHA Has Been a Catalyst — Setting the Benchmark for Sustainable Modifications 

MHA has transformed the way the mortgage servicing industry deals with alternatives to 
foreclosure. Because of MHA, servicers have developed constructive private-sector options. 
Where there was once no consensus plan among loan servicers about how to respond to 
borrowers in need of assistance, HAMP established a universal affordability standard: a 31 
percent debt-to-income ratio, which dramatically enhanced servicers’ ability to reduce mortgage 
payments to sustainable levels while simultaneously providing the necessary justification to 
investors for the size and type of modification. 

In the year following initiation of HAMP, home retention strategies changed dramatically. 
According to the OCC/ OTS Mortgage Metrics Report, in the first quarter of 2009, nearly half of 
mortgage modifications increased borrowers’ monthly payments or left their payments 
unchanged. By the second quarter of 2010, 90 percent of mortgage modifications lowered 
payments for the borrower. This change means borrowers are receiving better solutions. 
Modifications with payment reductions perform materially better than modifications that 
increase payments or leave them unchanged. 

Moreover, even holding the percentage payment reduction constant, the quality of modifications 
made by servicers appears to have improved since 2008. For modifications made in 2008, 15.8 


4 



percent of modifications that received a 20 percent payment reduction vrere 60 days or more 
delinquent three months into the modification. For modifications made in 2010, that 
delinquency rate has fallen almost in half, to 8.2 percent. The OCC’s Mortgage Metrics Report 
from 2010:Q2 attributes the improvement in mortgage performance to “servicer emphasis on 
repayment sustainability and the borrower’s ability to repay the debt.” 

Spurred by the catalyst of the HAMP program, the number of modification arrangements was 
nearly three times greater than the number of foreclosure completions between April 2009 and 
August 2010. More than 3.7 million modification arrangements were started, including the close 
to 1 .4 million trial HAMP modification starts, more than 568,000 FHA loss mitigation and early 
delinquency interventions, and more than 1 .6 million proprietary modifications by servicing 
members of the HOPE NOW Alliance. 

Further, it is important to keep in mind that MHA is only one of many Administration housing 
efforts targeting these challenges: the Administration has also provided substantial support for 
the housing markets through support for Fannie Mae and Freddie Mac to help keep mortgage 
rates affordable; purchase of agency mortgage-backed securities; and an initiative to provide 
support and financing to state and local Housing Finance Agencies (HFAs), These FTFAs 
provide, in turn, tens of thousands of affordable mortgages to first time homebuyers and help 
develop tens of thousands of affordable rental units for working families. 

Responding to a Changing Housing Crisis 

MHA was designed to be a versatile program. MHA includes a second lien modification 
program, a foreclosure alternatives program that promotes short sales and deeds-in-lieu of 
foreclosures, and an unemployment forbearance program. Treasury expanded HAMP to include 
FHA and Rural Development mortgage loans through the FHA-HAMP and RD-HAMP program, 
and also introduced a principal reduction option. Finally, Treasury introduced a program to 
allow the hardest-hit states to tailor housing assistance to their areas, and worked with FHA to 
introduce an option for homeowners with high negative equity to refinance into a new FHA loan 
if their lender agrees to reduce principal on the original loan by at least ten percent. 

Second Lien Modification Program 

The Second Lien Modification Program (referred to as 2MP) requires that when a borrower’s 
first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that 
servicer must offer to modify the borrower’s second lien according to a defined protocol. 2MP 
provides for a lump sum payment from Treasury in exchange for full extinguishment of the 
second lien, or a reduced lump sum payment from Treasury in exchange for a partial 
extinguishment and modification of the borrower’s remaining second lien. Although 2MP was 
initially met with reluctance from servicers and investors who did not want to recognize losses 
on their second lien portfolios, as of October 3, 2010, Treasury has signed up seventeen 2MP 
servicers, which includes the four largest mortgage servicers, who in aggregate service 
approximately 60 percent of outstanding second liens. The program uses a third-party database 
to match second lien loans with first lien loans permanently modified under HAMP. Servicers are 
required to modify' second lien loans within 1 20 days from the date the servicer receives the first lien and 



20 


second lien matehing infomiation. Tlie implementation of this database began over the siunmcr. Five 
2MP Senieers have already begun matching modified first liens with their eorresponding seeond 
liens, while the other twelve are in some phase of developmg systems capaeity to do so. Information on 
the second lien program will be included in upcoming Monthly Servicer Performance Reports as 
data becomes available. 

Home Affordable Foreclosure Alternatives Program 

Any modification program seeking to avoid preventable foreclosures has limits, HAMP 
included. HAMP does not, nor was it ever intended to, address every delinquent loan. Borrowers 
who do not qualify for HAMP may benefit from an alternative program that helps the borrower 
transition to more affordable housing and avoid the substantial costs of a foreclosure. Under 
HAFA, Treasury provides incentives for short sales and deeds-in-lieu of foreclosure for 
circumstances in which borrowers are unable to complete the HAMP modification process or 
decline a HAMP modification. Borrowers are eligible for a relocation assistance payment, and 
servicers receive an incentive for completing a short sale or deed-in-lieu of foreclosure. In 
addition, investors are paid additional incentives for allowing some short sale proceeds to be 
distributed to subordinate lien holders. The Home Affordable Foreclosure Alternatives (HAFA) 
Program became effective on April 5, 2010. 

Unemployment Program 

In March 2010, the Obama Administration announced enhancements to HAMP aimed at 
unemployment problems by requiring servicers to provide temporary mortgage assistance to 
many unemployed homeowners. The Unemployment Program (UP) requires servicers to grant 
qualified unemployed borrowers a forbearance period during which their mortgage payments are 
temporarily reduced for a minimum of three months, and up to six months for some borrowers, 
while they look for a newjob. Servicers are prohibited from initiating a foreclosure action or 
conducting a foreclosure sale (a) while the borrower is being evaluated for UP, (b) after a 
foreclosure plan notice is mailed, (c) during the UP forbearance or extension, or (d) while the 
borrower is being evaluated for or participating in HAMP or HAFA following the UP 
forbearance period. UP went in to effect August I, 2010. Because no incentives are paid under 
UP, data reports will be based on servicer surveys. 

Principal Reduction Alternative 

The Administration announced further enhancements to HAMP in March 2010 by encouraging 
servicers to write down mortgage debt as part of a HAMP modification (the Principal Reduction 
Alternative, or PRA). Under PRA, servicers are required to evaluate the benefit of principal 
reduction and are encouraged to offer principal reduction whenever the net present value (NPV) 
result of a HAMP modification using PRA is greater than the NPV result without considering 
principal reduction. The principal reduction and the incentives based on the dollar value of the 
principal reduced will be earned by the borrower and investor based on a pay-for-success 
structure. Under the contract with each servicer. Treasury cannot compel a servicer to select 
PRA over the standard HAMP modification even if the NPV of PRA is greater than the NPV of 
regular HAMP. However, Treasury has required servicers to have written policies for PRA to 


6 



21 


help ensure that similarly situated borrowers are treated consistently. The program became 
operational October I, 2010 and the four largest servicers have indicated an intention to offer 
PRA to homeowners. 

FHA Refinance 

Also in March 2010, the Administration announced adjustments to existing FHA refinance 
programs that permit lenders to provide additional refinancing options to homeowners who owe 
more than their homes are worth because of large declines in home prices in their local markets. 
This program, known as the FHA Short Refinance option, will provide more opportunities for 
qualifying mortgage loans to be restructured and refinanced into FHA-insured loans. 

In order to qualify for this program, a homeowner must be current on their existing first lien 
mortgage; the homeowner must occupy the home as a primary residence and have a qualifying 
credit score; the mortgage owner must reduce the amount owed on the original loan by at least 
10 percent; the new FHA loan must have a balance of no more than 97.75% of the current value 
of the home; and total mortgage debt for the borrower after the refinancing, including both the 
first lien mortgage and any other junior liens, cannot be greater than 1 1 5% of the current value of 
the home - giving homeowmers a path to regain equity in their homes and affordable monthly 
payments. Program guidance was issued to participating FHA servicers in September 2010. 

HFA Hardest-Hit Fund 

On February 19, 2010, the Administration announced the Housing Finance Agency Innovation 
Fund for the Hardest Hit Housing Markets (HFA Hardest-Hit Fund) for state HFAs in the 
nation’s hardest-hit housing markets to design innovative, locally targeted foreclosure prevention 
programs. In total, $7.6 billion has been allocated to 18 states (Alabama, Arizona, California, 
Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North 
Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee) and the District of 
Columbia under the HFA Hardest-Hit Fund. As of November 1, 2010, four states were either 
accepting applications or providing assistance (Arizona, Michigan, Ohio and Rhode Island). By 
the end of 2010 another three states are expected to begin providing assistance. The remaining 
states are expected to begin providing assistance in the first half of 2011. 

Allocations under the HFA Hardest-Hit Fund were made using several different metrics. Some 
of the funds were allocated to states that have suffered average home price drops of more than 20 
percent from their peak, while other funds were allocated to states with the highest concentration 
of their populations living in counties with unemployment rates greater than 12 percent or 
unemployment rates that were at or above the national average. In addition, some funds were 
allocated to all the states and jurisdictions already participating in the HFA Hardest-Hit Fund to 
expand the reach of their programs to help more struggling homeowners. The applicable HFAs 
designed the state programs themselves, tailoring the housing assistance to their local needs. A 
minimum of $2 billion of the funding is required to be used by states for targeted unemployment 
or under-employment programs that provide temporary assistance to eligible homeowners to 
help them pay their mortgages while they seek re-employment or additional employment or 
undertake job training. Treasury also required that all of the programs comply with the 


7 



22 


requirements of EESA, which include that they must be designed to prevent avoidable 
foreclosures. All of the funded program designs are posted online at 
httu:/Avw\v.FinancialStabilitv.Rov/roadtostabilitv/hardesthitfund.html . 

Transparency. Accountability, and Compliance 

I would like to provide you with further detail regarding the compliance efforts regarding 
HAMP, To protect taxpayers and ensure that TARP dollars are directed toward promoting 
financial stability, Treasury established rigorous transparency and accountability measures for all 
of its programs, including all housing programs. In addition, every borrower is entitled to a clear 
explanation if he or she is determined to be ineligible for a HAMP modification. Treasury 
requires servicers to report the reason for modification denials in the HAMP system of record. 
MHA-C’s compliance activities, through Second Look loan file reviews and other on-site 
assessments, evaluate the appropriateness of the denials as well as the timeliness and accuracy of 
the denial notification to the affected borrowers. 

In order to improve transparency of the HAMP NPV model, which is a key component of the 
eligibility test for HAMP, Treasury increased public access to the NPV white paper, which 
explains the methodology used in the NPV model. To ensure accuracy and reliability, MHA-C 
conducts periodic audits of servicers’ NPV practices. MHA-C conducts two types of reviews 
related to NPV, For those servicers that have re-coded the requirements of the NPV model in 
their processing systems, MHA-C conducts on-site and off-site reviews of model accuracy, 
model management, and data integrity and inputs. For those servicers using the MHA Servicer 
Portal, MHA-C conducts reviews of data integrity and inputs. Where non-compliance is found. 
Treasury requires servicers to take remedial actions, which can include re-evaluating borrowers 
with appropriate inputs, process changes, corrections to recoded NPV implementations, and, for 
servicers who have re-coded the NPV model, revetting back to the MHA Servicer Portal for 
loans with negative NPV results from the servicers’ re-coded NPV model until necessary 
corrections have been re-evaluated by MHA-C. In addition, as required by the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Treasury is preparing to establish a web portal that 
borrowers can access to run a NPV analysis using input data regarding their own mortgages, and 
to provide to borrowers who are turned down for a HAMP modification the input data used in 
evaluating the application. 

As stated above, servicers are subject to various other compliance activities, including periodic, 
on-site compliance reviews as well as on-site and off-site loan file reviews. These various 
compliance activities performed by MHA-C assess servicers’ compliance with HAMP 
requirements. Treasury works closely with MHA-C to adapt and execute our risk based 
compliance activities quickly based on changes in the program as well as observed trends. The 
current assessment of the top ten servicers’ adherence to our pre-foreclosure certifications and 
requirements is one example of how we adapt our compliance activities. MHA-C provides 
Treasury with the results from each of the various compliance activities conducted. Treasury 
performs quality reviews of these activities and evaluates the nature and scope of any instances 
of non-compliance, and assesses appropriate responses, including remedies, in a consistent 
manner. As stated earlier, during the beginning of the program, and as additional features (e.g., 
the Second Lien Program) are introduced. Treasury’s compliance activities and associated 


it 



23 


remedies focus on shaping servicers’ behavior and improving processes as servicers ramp up or 
modify their implementation of HAMP. As the program and servicers’ processes mature, 
financial remedies may become more appropriate and effective in reinforcing Treasury’s 
compliance and performance expectations. 

Looking Ahead for Housing 


Servicers need to increase efforts in helping borrowers avoid foreclosure through modification, 
as well as other alternatives to foreclosure, such as short sales. Furthermore, as we have learned 
through HAMP, servicers must be held accountable for ensuring that their foreclosure processes 
have integrity and are used after all loss mitigation options have been exhausted. Treasury’s 
main priority is to ensure that /irei, participating servicers are doing everything that they can to 
reach, evaluate, and start borrowers into HAMP modifications, second, if a HAMP modification 
is not possible, every servicer is properly evaluating each homeowner for all other potential 
options to prevent a foreclosure, including HAFA or one of their own modification programs, 
and third, servicers are utilizing programs such as UP or the HFA Hardest-Hit Fund to their 
fullest ability in order to prevent avoidable foreclosures. 

Over the past 20 months, we have been actively engaged with stakeholders from across the 
housing sector to find ways to increase the pace of new HAMP modifications, improve the 
characteristics of those modifications, and improve the borrower experience. We sincerely 
appreciate the assistance that we have gotten from Members of Congress and the advocacy 
community in strengthening borrower protections, incentivizing principal reduction, and 
assisting the unemployed. And most importantly, we value the efforts that Members of 
Congress, counselors and advocates have made in holding servicers accountable. 

Yet, as we deploy a comprehensive suite of loss mitigation options, we must remember, as the 
President noted, not every foreclosure can be prevented. Any broad-based solution must aim at 
achieving both an efficient and equitable allocation of resources. This means a balance must be 
struck between affording homeowners opportunities to avoid foreclosure while expeditiously 
easing the transition in those cases where homeownership is not an economically sustainable 
alternative. This is especially important in order to lay the foundation for future appreciation 
which will provide a meaningful path to sustainable homeownership. 

In the coming months, we will begin to see the impacts of the newly launched MHA programs. 
These programs will reach more distressed homeowners and provide additional stability to the 
housing market going forward. In much the same way that HAMP’s first lien modification 
program has provided a national blueprint for mortgage modifications, these new programs will 
continue to shape the mortgage servicing industry and act as a catalyst for industry 
standardization of short sale, refinance and principal reduction programs. The interplay of all 
these programs will provide a much more flexible response to changes in the housing market 
over the next two years. 


9 



24 


THE WHITE HOUSE 
Office of the Press Secretai*}^ 


FOR IMMEDIATE RELEASE 
October 20, 2010 


FACT SHEET: Federal Government Efforts to Support 
Accountability, Stability and Clarity in the Housing Market 

Today the Department of Housing and Urban Development, the Department of the Treasury, 
the Department of Justice, the Board of Govemoi's of the Federal Reserve System, the Office of 
the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Trade 
Commission, the Securities and Exchange Commission, the Federal Housing Finance Agency 
and the Office of Thrift Supervision met to discuss ongoing interagency action to support 
accountability, stability, and clarity in the housing market and residential mortgage backed 
securities market. 

We are working together to review pracbces that do not comply with state foreclosure law or 
applicable federal laws, including taking the following actions: 

• The Federal Housing Administration (FHA) has been reviewing servicers for 
compliance with loss mitigation requirements. These reviews are being broadened to 
include a larger range of processes, focusing in particular on servicer procedures during 
the final stages of the foreclosure process. TTiese reviews are expected to be complete 
within nine weeks. 

• The Financial Fraud Enforcement Task Force, led by the Department of Justice, has 
brought together more than 20 federal agencies, 94 US Attorney's Offices and dozens of 
state and local partners to share information about foreclosure and servicing practices. 
The Task Force's collaborah ve efforts are ensuring that the full resources of the federal 
and state regulatory and enforcement authoribes are being brought to bear in 
addressing this issue. 

• The Financial Fraud Enforcement Task Force has also been coordinating with State 
Attorneys General in their joint review^ of "robo-signing" practices in foreclosure cases. 

• The Department of Justice, including through the Executive Office for U.S. Trustees, is 
also working with regulators to investigate and, where appropriate, litigate against 
servicers, their law firms, and third-party providers regarding their foreclosure and 
bankruptcy processes. 

• The Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to 
remind servicers of their contractual and legal responsibilities in foreclosure processing. 
On October 13, FHFA directed Fannie Mae and Freddie Mac to implement a policy 


10 



25 


framework for dealing with possible foreclosure process deficiencies that requires 
servicers to review their foreclosme processes and fix any processing problems they 
identify. The FHFA policy framework includes specific steps servicers should take to 
remedy mistakes in foreclosure affidavits so that the information contained in the 
affidavits is correct and that the affidavits are completed in compliance with applicable 
law. 


The Office of the Comptroller of the Currency (OCC) directed all large national bank 
servicers on September 29 to review their foreclosure management processes, including 
file review, affidavit processing and signatures, to ensure that the processes are fully 
compliant with all applicable state laws. 

The Office of the Comptroller of the Currency and the Federal Reserve System are jointly 
examining foreclosure and securitization practices at the nation's largest servicers. The 
examinations will include intensive review of the firms' policies, procedures, and 
internal controls related to loan modifications, foreclosures and securitizations. The 
reviews will also evaluate controls over the selection and management of third-party 
service providers. 

In coordination with the work of the other agencies, the Office of Thrift Supervision 
(OTS) is reviewing the mortgage related policies, foreclosure processes and staffing 
levels of the largest servicers it supervises. The OTS has gathered preliminary 
information through its regional offices about the servicer practices across the country. 

It also issued correspondence on October 8 to all savings associations involved in 
servicing residential mortgages requiring the immediate review of their actual practices 
associated with the execution of documents related to the foreclosure process. 

The Federal Deposit Insurance Corporation is participating in the reviews by the OCC, 
the Federal Reserve System, and the OTS of the foreclosure and securitization practices 
of the largest mortgage servicers in its role as back-up supervisor. The FDTC also is 
verifying that the servicers it supervises do not exhibit the problems that others have 
identified as well as reviewing the processes used by servicers of loans subject to loss 
share agreements and other loans from receiverships of failed banks. The regulators are 
also evaluating foreclosure and securitization practices in electronic regishation systems. 

The Federal Trade Commission (FTQ is monitoring servicers under existing public 
orders to confirm proper servicing and foreclosure processes, is conducting reviews in 
line with past servicing abuses anti monitoring the market closely for any fraud or 
foreclosure scams. 

The US Treasury has implemented a strong compliance framework for the Home 
Affordable Modification Program (HAMP) servicers. On October 6, Treasury issued a 
notice to HAMP servicers reminding them of their requirement to comply with all 
applicable state and federal laws, as well as a reminder that prior to foreclosure sale, 
servicers must certify to the foreclosrue attorney or trustee that all loss mitigation 


II 



26 


options have been considered and exhausted. Treasury also recently instructed its 
HAMP compliance agent to review internal policies, procedures, and processes for 
completing the pre-foreclosure certificalions at the ten largest servicers. 

• In addition to its role enforcing the federal securities laws, the Securities and Exchange 
Commission (SEC) has issued proposed rules that would provide greater transparency 
and disclosures in the securitization market and provide investors with additional tools 
to evaluate actions in the securitization market. 


### 


12 


Mr. Conyers. Mr. Edward DeMarco has been called one of the 
50 most powerful men in real estate by Bloomberg BusinessWeek. 
He appears today as the acting director of the Federal Housing Fi- 
nance Agency which is the conservator for both Fannie Mae and 
Freddie Mac. He also established the agenda for the Home Afford- 
able Finance program. And we welcome you to this hearing today, 
sir. 



27 


TESTIMONY OF EDWARD J. DeMARCO, ACTING DIRECTOR, 
FEDERAL HOUSING FINANCE AGENCY 

Mr. DeMarco. Thank you, Mr. Chairman. Chairman Conyers, 
and Members of the Committee, thank you for inviting me here 
today. The recently identified deficiencies and the preparation and 
handling of legal documents to carry out foreclosures 

Mr. Conyers. Could you pull your mic closer to you, we can’t 
hear. 

Mr. DeMarco. Okay. Is this working? I will begin again. The re- 
cently identified deficiencies and the preparation and handling of 
legal documents to carry out foreclosures are unacceptable. Those 
deficiencies undoubtedly reflect strains on a system that is oper- 
ating beyond capacity, but they also represent a breakdown in cor- 
porate internal controls and management oversight. 

FHFA’s goals in this matter are twofold, to ensure that fore- 
closure processing is done in accordance with the servicer contract 
and applicable laws and to protect taxpayers from further losses on 
defaulted mortgages. Of course, before any foreclosure is completed, 
we expect servicers to exhaust all alternatives. 

My prepared statement reviews the actions that FHFA has taken 
to date, as well as those underway. It also provides context for un- 
derstanding the problems that have arisen, including consideration 
of the role of servicers and a description of the diverse range of 
foreclosure processing requirements. As I have previously reported 
to Congress, the enterprises, Fannie Mae and Freddie Mac, mini- 
mize losses on delinquent mortgages by offering distressed bor- 
rowers loan modifications, repayment plans or forbearance. These 
loss mitigation tools reduce the enterprises losses on delinquent 
mortgages and help homeowners retain their homes. Servicers of 
enterprise mortgages know that these tools are the first response 
to a homeowner who falls behind on their mortgage payments. Yet 
for some delinquent borrowers, their mortgage payments are sim- 
ply not affordable due to unemployment or other hardship, and a 
loan modification is not a workable solution. 

For these cases the enterprises offer foreclosure alternatives in 
the form of short sales and deeds in lieu of foreclosure. Despite 
these options for a graceful exit from a home, foreclosure remains 
the final and necessary option in many cases. As we know, fore- 
closure process deficiencies have emerged in several major 
servicers. Recently, FHFA provided the enterprises and servicers a 
four-point policy framework for handling these deficiencies. The 
four points are simply stated: First, verify that the foreclosure proc- 
ess is working properly; second, remediate any deficiencies identi- 
fied in foreclosure processes; third, refer suspicions of fraudulent 
activity; and finally, avoid delay in processing foreclosures in the 
absence of identified problems. Pursuant to that guidance, the en- 
terprises continue to gather information on the full nature and ex- 
tent of the servicers problems. Only a small number of servicers 
have reported back to the enterprises has having some problem 
with their foreclosure processing that needs to be addressed. Still, 
these firms represent a sizable portion of the enterprises combined 
books of business. The enterprises are currently working directly 
with their servicers to ensure that all loans are handled properly 



28 


and corrections and refiling of paperwork are completed where nec- 
essary and appropriate. 

To be clear, FHFA does not regulate mortgage servicers and the 
enterprises relationship with them is a contractual one. As conser- 
vator of Fannie Mae and Freddie Mac, FHFA expects all companies 
servicing enterprise mortgages to fulfill their contractual respon- 
sibilities which include compliance with both the enterprises’ seller/ 
servicer guides and applicable law. Also, FHFA remains committed 
to ensuring borrowers are presented with foreclosure alternatives. 

Still, it is important to remember that FHFA has a legal obliga- 
tion as conservator to preserve and conserve enterprise assets. This 
means minimizing losses on delinquent mortgages. Clearly, fore- 
closure alternatives, including loan modifications, can reduce losses 
relative to foreclosure. But when these alternatives do not work 
timely and accurate foreclosure processing is critical for minimizing 
taxpayer losses. 

To conclude, regulatory agencies including FHFA, are carrying 
out important examination activities that will better inform the 
issue. Thus, identification of further actions or regulatory re- 
sponses should await the results of these examinations and evalua- 
tion of the information being developed. Thank you. 

Mr. Conyers. Thank you. 

[The prepared statement of Mr. DeMarco follows:] 



29 


Prepared Statement of Edward J. DeMarco 



statement of 

Edward J. DeMarco, Acting Director 
Federal Housing Finance Agency 
Before the 

Committee on the Judiciary 
U.S. House of Representatives 

“Foreclosed Justice: Causes and Effects of the Foreclosure Crisis” 


December 2, 2010 



30 


statement of Edward J. DeMarco, Acting Director, 

Federal Housing Finance Agency 
Before the Committee on the Judiciary 
U.S. House of Representatives 

"Foreclosed Justice: Causes and Effects of the Foreclosure Crisis” 
December 2, 2010 


Introduction 

Chaimian Conyers, Ranldng Member Smith and members of the Committee, thank you for 
inviting me to speak with you today about problems in mortgage servicing. The recently- 
identified deficiencies in the preparation and handling of legal documents to carry out 
foreclosures are unacceptable. While those deficiencies undoubtedly reflect strains on a system 
that is operating beyond capacity and was never designed to handle the volume of nonperforming 
loans that we are seeing today, they also represent a breakdown in corporate internal controls and 
the integrity of mortgage servicing and foreclosure processing. Servicers and others within the 
industry may have attempted to expand the resources available to deliver appropriate loss 
mitigation services, including timely and accurate foreclosure processing, but in some instances 
those efforts have been inadequate. 

Since this latest set of difficulties was identified, I have had a team of managers and staff from 
the Federal Housing Finance Agency (FHFA) working closely with Fannie Mae and Freddie 
Mac (the Enterprises) to gauge the full scope of the foreclosure processing problem and to move 
forward on foreclosures where appropriate. Our goals are two-fold: to ensure that foreclosure 
processing is done in accordance with the servicer contract and applicable laws, and to protect 
taxpayers from further losses on defaulted mortgages. Moving forward on foreclosures where 
appropriate limits taxpayer losses and contributes to the ultimate recovery of domestic housing 



31 


markets. Of course, before any foreclosure is completed, we expect servicers to exhaust all 
alternatives. 

With those objectives in mind, I will review the actions that FHFA has taken to date, as well as 
those underway. Before doing so, 1 will provide context for understanding the problems that 
have arisen, including consideration of: 

• the role of the servicers, attorneys, and their contractual relationship with the 
Enterprises when performing loss mitigation and foreclosures and 

• the complexities of the system in which state and local laws create a diverse range 
of requirements that can extend foreclosure timelines, leaving homeowners and 
homebuyers in limbo, putting home values at risk in neighborhoods with 
abandoned or vacant properties and slowing the recovery of the housing market. 

Today, Fannie Mae and Freddie Mac own or guarantee 30 million mortgages; of those, more 
than 1 .3 million are more than 90 days seriously delinquent. As I have reported to the 
Committee on prior occasions, the Enterprises have sought to minimize losses on delinquent 
mortgages by offering distressed borrowers loan modifications, repayment plans, or forbearance. 
These loss mitigation techniques reduce the Enterprises’ losses on delinquent mortgages and 
help homeowners retain their homes. Servicers of Enterprise mortgages loiow that these loss 
mitigation options are the first response to a homeowner who falls behind on their mortgage 
payments. 


2 



32 


Yet, for some delinquent borrowers, their mortgage payments are simply not affordable due to 
unemployment or other hardship and a loan modification is not a workable solution. In other 
cases, homeowners have decided not to continue payment on their mortgages, perhaps because 
of the decline in value of their house or because personal circumstances have changed their 
desire or ability to retain their home. For these cases, the Enterprises offer foreclosure 
alternatives in the form of short sales and deeds-in-lieu of foreclosure. Such foreclosure 
alternatives generally are better for the homeowner, the neighborhood, and the Enterprise. 
Despite these options for a graceful exit from a home, foreclosure remains the final and 
necessary option in many cases. 

The sheer volume of delinquent homeowners has put intense pressure on servicers, including 
their loan workout efforts and their foreclosure processes. Other hearings and studies have 
analyzed how and why this has happened. One of our challenges today is to identify the full 
scope and implications of foreclosure processing problems and to improve the integrity of the 
foreclosure process at servicers and related parties that are failing to perform to required 
standards. 

Breakdowns in the Foreclosure Process and FHFA’s Initial Response 

As reports of foreclosure documentation deficiencies emerged at several major servicers, FHFA 
sought to ascertain the full scope and nature of the problem. On October 1, 1 issued a statement 
that said, in part: 


3 



33 


“FHFA, as conservator for Fannie Mae and Freddie Mac, supports efforts by the 
Enterprises to remind servicers and other parties engaged in processing foreclosures to do 
so in accordance with their seller-servicer agreements and applicable laws and 
regulations. Where deficiencies have been identified, FFIFA has directed the Enterprises 
to work collectively to develop and implement a consistent approach to address any 
problems. In addition, FHFA is coordinating with appropriate regulators on this issue. 
Our goal is to assure the integrity of the foreclosure process and to see that any 
corrections in processes be tailored to the problem, protecting the rights of borrowers and 
investors without causing any undue disruption to the mortgage markets.” 

On October 13, FEIFA built upon its earlier statement by providing the Enterprises and servicers 
a four-point policy framework for handling foreclosure process deficiencies, including specific 
steps FHFA expects them to take to assess and remedy the problems. The four points are simply 
stated: 

1 . Verify that the foreclosure process is working properly; 

2 . Remediate any deficiencies identified in foreclosure processing; 

3 . Refer suspicions of fraudulent activity; and 

4. Avoid delay in processing foreclosures in the absence of identified problems. 

Pursuant to that guidance, the Enterprises continue to gather information on the full nature and 
extent of servicer problems. Since then, only a small number of servicers have reported back to 
the Enterprises as having some problem with their foreclosure processing that needs to be 
addressed. Still, these firms represent a sizeable portion of the Enterprises combined books of 


4 



34 


business. The issues identified to-date range in size and scope, and may not affect every 
delinquent mortgage that a particular servicer is handling. Thus, it is difficult to say just how 
many delinquent Enterprise mortgages may be affected and the degree of difficulty in 
remediating the deficiencies. The Enterprises are currently working directly with their servicers 
to ensure that all loans are handled properly and corrections and refiling of paperwork are 
completed where necessary and appropriate. Because the file reviews are being performed case- 
by-case, the full evaluation will take a substantial amount of time and resources. 

As made clear in FEfFA’s October 13”' policy framework, if wrongful acts in foreclosure 
processing are discovered, the appropriate remedies should be undertaken by servicers, 
regulators, and law enforcement. Simply put, it is not acceptable that servicers and other parties 
involved in foreclosure processing may not have adhered to state and local laws. As Conservator 
of the Enterprises, FHFA expects all companies servicing Enterprise mortgages to fulfill their 
contractual responsibilities, which include compliance with both the Enterprises’ seller/servicer 
guides and applicable law. We expect the same of other parties as well, including law firms 
working on foreclosure processing of Enterprise loans. Finally, to reinforce the duties 
undertaken by servicers, the Enterprises have indicated that they may pursue remedies for 
contractual violations. 

The Role of the Servicer 

When an Enterprise purchases a mortgage from an originating lender, it contracts with that 
lender or another bank or financial institution to service the loan. The servicer is the main 


5 



35 


communication point for the borrower, accepting all payments and crediting the borrower’s 
account. 

When homeowners get behind in payments, the servicer is expected to work with the delinquent 
borrower to set up a repayment plan, modify the loan, or. if foreclosure alternatives are not 
viable, begin foreclosure proceedings. Although the Enterprises hold the actual promissory notes 
through document custodians who maintain these records separate from the servicers, 

Fannie Mae and Freddie Mac do not themselves accept or process payments or move to modify 
or foreclose. 

For their work, the servicers get paid by the Enterprises and, under the terms of their contracts, 
each servicer is obligated to follow the procedures established by the Enterprise, including 
compliance with all appropriate laws. The Enterprises also provide policy guidelines to their 
seller/servicers. A servicer is contractually bound to comply with this guidance; however, the 
Enterprises do not review loan files for each and every mortgage they guarantee or purchase. 
Instead, the Enterprises rely on a representation and warranty (rep and warrant) model under 
w’hich the loan originator and loan servicer commit that the loan origination and servicing 
complies with the Enterprise’s seller/servicer guide. Under the terms of the servicer contracts, 
the Enterprises can require the servicer to pay damages if the servicer does not follow the 
seller/servicer guidelines or force the servicer to buy back the loan if the loan fails to meet the 
Enterprises’ eligibility guidelines. 


6 



36 


The majority of Enterprise loans are serviced by a few very large banks. However, there are 
hundreds of servicers that hold contracts with each Enterprise; many are relatively small 
institutions. Each servicer typically works on behalf of many investors, including trustees for 
private label securities, and must follow the procedures and processes set forth in each investor 
contract. As 1 will describe further below, we are working with other government agencies to 
review foreclosure servicing practices and operations, and where we find firms with operational 
deficiencies, these must be remedied. 

Attorneys Specializing in Foreclosure Processing 

In order to complete foreclosures, particularly injudicial foreclosure states, servicers often 
contract with law firms from the Enterprises’ approved attorney networks (for servicers of one 
Enterprise this is required, for the other, it is optional to use the approved network). These law 
firms have been evaluated by the Enterprises before being added to that Enterprise’s attorney 
network. By adding a firm to its network, the Enterprise has concluded the firm has sufficient 
capacity and expertise to assist a servicer in need of foreclosure processing services. Recently 
the capacity of some of these law firms has also been strained by the volume of foreclosures and 
the burden on the court systems. In light of processing problems we are discussing today, it is 
evident that both Enterprises must take steps to improve their selection and oversight of the 
attorneys in their networks. 


7 



37 


state Foreclosure Processes and Foreclosure Timelines 

Foreclosure proceedings and requirements are established at the state level. Almost half of the 
states have a judicial foreclosure process that relies on the court system. By contrast, 
foreclosures in non-judicial states are managed according to state and local laws but handled 
outside of the court system. 

Both systems have protections for homeowners, and to a large extent the essential paperwork and 
documentation elements are the same across all states, although particular requirements vary 
from jurisdiction to jurisdiction. In judicial foreclosure states, individual judges may set specific 
requirements within their courtrooms that are in addition to, or differ from, terms established by 
other judges in that state. Servicers and law firms involved in processing foreclosures must be 
aware of and responsive to such particular requirements. 

Both judicial and non-judicial states are experiencing growing numbers of foreclosures, which 
are contributing to long delays between a borrower’s default and the completion of an associated 
foreclosure. 

Currently, the time from start to completion of a foreclosure for Enterprise loans in non-judicial 
states typically takes six months to a year. In judicial foreclosure states, it takes even longer, 
often 6 months longer than in non-judicial states and in certain judicial states the difference is 
even greater. Bear in mind, these foreclosure periods begin after the loan becomes seriously 
delinquent, typically about four months. 


8 



38 


Some reasonable delays in the foreclosure process have been expected, appropriately so over the 
past two years, as new loss mitigation programs, such as loan modifications, have been 
introduced. These programs have often been accompanied by temporary foreclosure moratoria 
so that homeowners in the foreclosure process could be assessed for a modification. Servicers 
are obligated to follow Enterprise guidelines, including evaluating homeowners’ for eligibility 
for the various foreclosure mitigation programs I described earlier. 

While FUFA remains committed to ensuring borrowers are presented with foreclosure 
alternatives, it is important to remember that FHFA has a legal obligation as Conservator to 
preserve and conserve the Enterprises’ assets. As I have said before, this means minimizing 
losses on delinquent mortgages. Clearly, foreclosure alternatives, including loan modifications, 
can reduce losses relative to foreclosure and benefit homeowners and neighborhoods, adding 
some measure of stability to local housing markets. But when these alternatives do not work, 
timely and accurate foreclosure processing is critical for minimizing taxpayer losses. The direct 
effect on taxpayers is thus: when an Enterprise-guaranteed mortgage is delinquent four months, 
the Enterprise removes the mortgage from the mortgage-backed security in which it was funded, 
paying off the security investors at par. The delinquent mortgage then goes on the balance sheet 
of the Enterprise, funded with debt issued by the Enterprise, debt supported by the Treasury 
Department’s Senior Preferred Stock Purchase Agreement. While awaiting foreclosure (or some 
foreclosure alternative), that loan is generating no revenue because the borrower has stopped 
paying, but the Enterprise must keep paying interest on the debt supporting the mortgage. The 


9 



39 


cost of the delay is why it is critical to FHFA’s responsibilities as Conservator to ensure timely 
processing of foreclosure actions - the cost is ultimately borne by the taxpayer. 

When a homeowner falls behind on their mortgage payments, servicers operate on a single track, 
working through loss mitigation options with the homeowner, typically beginning with the 
HAMP program and followed by other loan modification programs or other foreclosure 
alternatives. When all loss mitigation alternatives have been exhausted, the servicers are 
expected to initiate the foreclosure process. Furthermore, the Enterprises have instructed 
servicers to suspend foreclosure processing when loss mitigation activities reach certain 
milestones. At times, simultaneous actions are necessary because of the long timeframes of the 
foreclosure process and because borrowers are not always responsive to foreclosure alternative 
offers. 

While the Enterprises have established foreclosure time limits in their seller/servicer guides, no 
servicers have been penalized in recent years for exceeding those limits, largely because state 
and local legal requirements, loan modification elTorts, tbe unprecedented volume, and various 
foreclosure moratoria have greatly contributed to delays. During this year, FFIFA has been 
working with each Enterprise to improve servicers’ adherence to these timelines, and to apply 
penalties where justified, but the recent set of issues have further complicated that effort. 

Deficiencies in the foreclosure process, including problems with affidavits, notaries, and 
improper practices, appear to be the result of inadequate resources for and oversight of servicing 
operations. The pressure from high volumes of foreclosures working through the system has 


10 



40 


surfaced fault lines in the foreclosure process that remain the responsibility of management at 
these companies to identify and fix. 

Other Actions Being Taken & Matters for Consideration 

All of us - regulators, lawmakers, investors, and the general public - want answers to the 
questions raised by this most recent breakdown in our housing finance market and we want them 
now. Much work is underway to assess the characteristics, extent, and location of these 
problems and conclusions must aw'ait the completion of this w'ork. Regulatory agencies 
including FHFA are carrying out important examination activities that will better inform the 
issue. Thus, identification of further actions or regulatory responses must await the results of 
these examinations and evaluation of the information developed. 

My colleagues can speak to the examination activities they are leading, some of which include 
FHFA participation. In particular, FHFA is participating in a multi-agency examination of the 
Mortgage Electronic Registration Systems (MERS). FFIFA is reviewing the Enterprises’ 
practices with regard to oversight of their counterparties, w'hich have been lacking in the past. 
Neither FFIFA nor the Enterprises have any regulatory authority with regard to mortgage 
servicers. FHFA’s authority is limited to the Enterprises and. as 1 have noted, the Enterprises’ 
relationships with mortgage servicers are contractual, not regulatory. 

I do not support a blanket moratorium on foreclosures. The adverse consequences of a 
moratorium outweigh the argued benefits. The costs to neighborhoods, taxpayers, and investors 


11 



41 


would be enormous. Our focus should be on fixing problems where they are found and then 
moving forw-ard expeditiously w'ith foreclosure proceedings where foreclosure alternatives have 
been exhausted and where no process deficiencies have been identified or they have been 
remedied. Delay is costing taxpayers money and creates undesirable incentives for homeowners 
to stop paying their contracted mortgage obligations. 

To date, Fannie Mae and Freddie Mac, as well as other parts of the housing finance industry, 
have relied on a rep and warrant model, whereby one party commits to follow a set of standards 
and the other party trusts that commitment, unless and until a clear violation or breach is 
identified. FHFA is reviewing the Enterprises’ practices in enforcing reps and warrants and 
FFIFA expects adherence to those contract terms with regard to mortgages they purchase and 
with regard to mortgage servicing. 

FHFA remains committed to working with fellow regulators to enhance our oversight of the 
foreclosure process and to ensure market participants adhere to state and federal laws. To further 
our efforts at bringing stability to housing finance, our approach needs to continue to focus on 
offering troubled homeowners an opportunity to remedy their payment difficulties. Failing that, 
homeowners should be offered foreclosure alternatives but, after that, foreclosure must proceed 
in a legal and timely manner for the sake of neighborhoods, investors, and taxpayers. 

Thank you for this opportunity to testify. I would be glad to answer any questions. 


12 


Mr. Conyers. Attorney Julie Williams is the Chief Counsel of 
the Office of Comptroller of the Currency at the Department of 
Treasury. OCC supervises all national banks and their operating 
subsidiaries. Attorney Williams is the author of two books and nu- 
merous articles on financial servicers, securities and corporate law 
matters. 

We welcome you to the hearing this morning. 



42 


TESTIMONY OF JULIE L. WILLIAMS, CHIEF COUNSEL, OFFICE 

OF THE COMPTROLLER OF THE CURRENCY, UNITED STATES 

DEPARTMENT OF THE TREASURY 

Ms. Williams. Thank you. 

Chairman Conyers and Members of the Committee, I appreciate 
this opportunity to appear today to discuss recent events con- 
cerning the mortgage foreclosure process and the actions that the 
Office of the Comptroller of the Currency is taking in response. 

The occurrences of improperly executed documents and attesta- 
tions that have come to light raise concerns about the overall integ- 
rity of the foreclosure process. Laws in each State establish the re- 
quirements and process by which that action may be taken. When 
that due process is not followed, it is not a technicality, it goes to 
the propriety of the foreclosure itself. The improprieties that have 
been identified in the past several months are unacceptable prac- 
tices that warrant the thorough investigation that is now under 
way by the OCC and other agencies and appropriate and vigorous 
responses. 

The OCC supervises all national banks and their operating sub- 
sidiaries, including their mortgage-servicing operation. In recent 
years as problem loans surged, the OCC’s primary focus was to 
prevent avoidable foreclosures by directing national banks to in- 
crease the volume and sustainability of loan modifications. When 
we saw, using data from our mortgage metrics system, that an in- 
ordinate number of modifications initiated in 2008 were re- 
defaulting, we directed national bank mortgage servicers to take 
corrective action. Since then we have seen a sharp increase in 
modifications that lowered monthly payments and fewer defaults. 

While these efforts are preventing foreclosures, many families 
are still struggling and face the prospect of losing their homes. In 
this regard questions have arisen about the practice of continuing 
foreclosure proceedings, even when a trial modification has been 
negotiated and is in force. We agree that this dual track is unnec- 
essarily confusing for distressed homeowners and risks them re- 
ceiving mixed or contradictory information. 

HAMP requirements contain a model for suspending foreclosure 
proceedings when a borrower is successfully performing in a trial 
modification program; but most modifications today are not HAMP 
modifications. Therefore, yesterday. Acting Comptroller John 
Walsh announced that the OCC will direct national bank servicers 
to suspend foreclosure proceedings for borrowers in all types of suc- 
cessfully performing trial modifications where the servicer has the 
legal ability to do so. It is important to remember, however, that 
GSEs and private investors dictate the terms for non-HAMP modi- 
fications, so this flexibility may not always be available to the 
servicers. 

The OCC, as part of its supervisory processes, reviews a national 
bank’s foreclosure governance process to determine if it has appro- 
priate policies, procedures and internal controls necessary to en- 
sure the accuracy of information relied upon in the foreclosure 
process and compliance with Federal and State laws. We expect 
banks to test these processes through their internal audit and on- 
going quality-control functions. Unfortunately, neither banks’ inter- 
nal quality control tests, internal audits, nor the OCC’s own con- 



43 


sumer complaint data suggested foreclosure document processing 
was an area of systemic concern. However, when problems were 
identified at Ally Bank, which is not a national bank, we imme- 
diately directed the eight largest national bank mortgage servicers 
to review their operations and take corrective actions. 

In concert with other regulatory agencies, OCC examiners are 
now reviewing samples of individual loan files where foreclosures 
have either been initiated or completed to test the validity of 
banks’ self-assessments and corrective actions; whether foreclosed 
borrowers were appropriately considered for loss-mitigation alter- 
natives such as loan modification; and whether fees charged were 
appropriate, documents were accurate and appropriately reviewed, 
proper signatures were obtained, and documents necessary to sup- 
port a legal foreclosure proceeding were provided. 

We have likewise instructed examiners to be alert to and docu- 
ment any practices such as misapplied payments, padded fees and 
inappropriate application of forced-placed insurance as part of 
these file reviews. Where we find errors or deficiencies, we are di- 
recting national banks to take immediate corrective action, and we 
will not hesitate to take an enforcement action or impose civil 
money penalties, removals from banking, and make criminal refer- 
rals if warranted. 

We expect to complete our examinations by mid to late December 
and to determine by the end of January what additional super- 
visory or enforcement actions are needed. 

Thank you again for the opportunity to appear today. I would be 
happy to answer your questions. 

Mr. Conyers. Thank you. 

[The prepared statement of Ms. Williams follows:] 



44 


Prepared Statement of Julie L. Williams 


For Release Upon Delivery 
10:00 a.m., December 2, 2010 


TESTIMONY OF 
JULIE L. WILLIAMS 

CHIEF COUNSEL AND FIRST SENIOR DEPUTY COMPTROLLER 
before the 

COMMITTEE ON THE JUDICIARY 
U.S. HOUSE OF REPRESENTATIVES 
December 2^ 2010 


Statement Required by 12U.S,C, §250: 

The views expressed herein are those of the Office of the Comptroller of the Currency 
and do not necessarily represent the views of the President. 



45 


Introduction 

Chairman Conyers, Ranking Member Smith, and members of the Committee, 1 
appreciate this opportunity to discuss recently reported events concerning the foreclosure 
process and actions that the Office of the Comptroller of the Currency (OCC) is taking to 
address these situations where they involve national banks. The occurrences of improperly 
executed documents and attestations raise concerns about the overall integrity of the 
foreclosure process, The loss of one’s home is a personally and financially disastrous event 
for a borrower. Laws in each state establish the requirements and process by which that 
action may be taken. When that due process is not followed, it is not a technicality, it goes to 
the propriety of the foreclosure itself. The improprieties that have been identified in the past 
several months are unacceptable practices that warrant the thorough investigation that is now 
underway by the OCC, other federal bank regulators, and other agencies, and appropriate and 
vigorous responses. 

The OCC supervises all national banks and their operating subsidiaries, including their 
mortgage servicing operations. The servicing portfolios of the eight largest national bank 
mortgage servicers^ account for approximately 63 percent of all mortgages outstanding in the 
United States - nearly 33.3 million loans totaling almost $5.8 trillion in principal balances as 
of June 30, 2010. 

To date, six large national bank servicers have publicly acknowledged deficiencies in 
their foreclosure processes. The lapses that have been reported represent a serious operational 
breakdown in foreclosure governance and controls that national banks should maintain. 

These lapses are unacceptable, and we are taking aggressive actions to hold national banks 
accountable, and to get these problems fixed. 


^ Bank of America, Cilibaiilc, JPMorgan Chase, HSBC, MelLife, PNC. Wells Fargo, and U S. Bank. 



46 


As soon as the problems at Ally Bank came to light, we directed the largest national 
bank mortgage servicers under our supervision to review their operations, to take corrective 
action to remedy identified problems, and to strengthen their foreclosure governance to 
prevent reoccurrences. At the same time, we initiated plans for intensive, on-site 
examinations of the eight largest national bank mortgage servicers. Through these 
examinations we are independently testing the adequacy of governance over their foreclosure 
processes to ensure foreclosures are completed in accordance with applicable legal 
requirements and that delinquency affidavits and claims that are the basis for the foreclosure 
are accurate. 

As part of our examinations we also are reviewing samples of individual loan files 
where foreclosures have either been initiated or completed to test the validity of bank self- 
assessments and corrective actions, and to determine whether troubled borrowers were 
considered for loss mitigation alternatives such as loan modifications prior to foreclosure. 

We have likewise instructed examiners to be alert to, and document, any 
practices such as misapplied payments, padded fees, and inappropriate application of forced 
placed insurance as part of these file reviews. Should we find evidence of such occurrences, 
we will take appropriate action. Our examinations are still on-going. 

My testimony provides a brief discussion of these recently publicized foreclosure 
problems, and our most recent findings on trends in modifications, alternatives to 
modifications, and foreclosures from the OCC cmd OTS Mortgage Metrics Report. I then 
describe the OCC’s actions with respect to loan modifications and problems that have arisen 
in the foreclosure process. 

Current Foreclosure Problems 

The current foreclosure problems represent another painful chapter of the recent 

financial crisis, stemming from a record number of ti'oubled borrowers, which has strained 

2 



47 


servicer capacity to provide loss mitigation activities to those borrowers and ensure a large 
and growing number of foreclosures are properly processed. 

The concerns about improper foreclosure practices initially centered on two issues that 
deal with the documentation required to effect foreclosure actions. The first issue involves 
requirements under some state laws for individuals to sign affidavits attesting to personal 
Icnowledge of the accuracy and completion of required documentation essential to a valid 
foreclosure proceeding, The second issue is whether, in similar situations where required by 
state law, individual notaries may have violated procedures in notarizing documentation by, 
for example, notarizing the documents after they had been signed, rather than in the presence 
of the individual signing the affidavit. As the situation has evolved, concerns have broadened 
to include the accuracy of information underlying the foreclosure process, and the physical 
possession and control over documents necessary to foreclose on a home. Our examinations 
are investigating all of these issues. 

The signing and attestation of foreclosure documents are steps required by various 
state laws that govern the legal completion of a foreclosure proceeding — and as such, 
typically represent the final steps in what is a very lengthy and resource intensive process that 
banks undertake to deal with seriously delinquent borrowers. The time to complete a 
foreclosure process in most states can take 1 5 months or more and in many cases can be as 
long as two years. Foreclosure completion timelines are generally set by investors such as 
Fannie Mae and Freddie Mac, and there are penalties that they may impose on servicers that 
do not meet the timelines mandated by these investors. 

The specific requirements and the legal standards applied for determining personal 

loiowledge may vary across judicial foreclosure states, and thus require servicers to ensure 

that their processes conform to individual state, or in some cases, local precedent. To assist 

with meeting these requirements, mortgage servicers often outsource some of the requisite 

3 



48 


legal work to law firms familiar with local standards and other third parties for input and 
review. Fannie Mae and Freddie Mac in fact require servicers to use law firms approved for 
particular geographies when preparing foreclosure filings. For large mortgage servicers that 
operate nationwide, this often has resulted in use of a significant number of third parties - 
lawyers and other service providers - and a panoply of documents used in their mortgage 
foreclosure processes: one large mortgage servicer has indicated that they use over 250 
different affidavit forms. These operational challenges, however, do not absolve the banks 
from their responsibilities to have the appropriate staff, quality controls, and an effective audit 
process in place to ensure that documents are accurate and the foreclosure process is 
conducted in compliance with applicable state and local laws. 

Servicers typically move forward with foreclosure proceedings only after thoroughly 
evaluating a borrower' s eligibility for loan modifications and other alternatives, such as short 
sales or deed-in-lieu-of-foreclosures.^ As a practical matter, many investors for whom loans 
are serviced, including Fannie Mae and Freddie Mac, require servicers to attempt loss 
mitigation actions, including modifications, prior to foreclosing on a home. The largest 
national bank mortgage servicers are participants in Treasury’s Home Affordable 
Modification Program (HAMP) and are required to evaluate troubled borrowers to determine 
their eligibility for a HAMP modification. For borrowers that fail to qualify for a HAMP loan 
modification, servicers also typically consider whether the borrowers would qualify for a 
modification under their proprietary programs, which generally have more flexible criteria. In 
the vast majority of cases, it is only after these loan modification elTorts have been exhausted 
that final foreclosure actions are taken. 

■ Short sales refer lo sales of niorlgagcd properties al prices dial net less dian Ihc total aniounl due on die loans. 
Scr\ iccrs and borrowers negotiate repayment programs, forbearance, or forgiveness for am- remaining 
deficienc}^ on the debt. Sliort sales typically hav-e less ad\'erse impact tlian foreclosures on borrowers' credit 
records. Deed-in-lieu-of-foreclosure actions refer to actions in which borrowers transfer ownership of the 
properlies (deeds) lo serv icers in full satisfaction of llie outstanding mortgage debt lo lessen the adverse impact 
of the debt on borrowers' credit records. 


4 



49 


Recent Trends in Mortgage Modifications and Foreclosure Activity 

Since 2008, the OCC has collected loan level data from the large national banks we 
supervise and published this information in quarterly mortgage metrics reports. We have 
since expanded our data collection and reporting efforts and joined with the Office of Thrift 
Supervision (OTS) to publish data on the performance of loans and loan modifications, and to 
highlight trends in loss mitigation activities, foreclosures, and re-defaults occurring on 
mortgages serviced by large national banks and federally regulated thrifts. Our most recent 
report, released in September, provides data through second quarter 2010 for nearly 34 
million first-lien mortgages, totaling nearly $6 trillion in outstanding balances — representing 
approximately 65 percent of all first-lien residential mortgages in the country.' Key trends 
from that report are summarized below. 

Overall Mortsia^e Performance 

As shown in Table 1, the percentage of current and performing mortgages 
remained unchanged from the previous quarter at 87.3 percent. The percentage of 
mortgages 30 to 59 days delinquent increased to 3.1 percent at the end of the second 
quarter of 2010, compared with 2.8 percent at the end of the previous quarter and 3.2 
percent a year ago. The percentage of seriously delinquent mortgages'^ was 6.2 percent, a 
decrease of 5,3 percent from the previous quarter but up 16. 1 percent from a year ago. 
Foreclosures in process were 3.4 percent of the total portfolio, a 1 .4 percent decrease 
from the previous quarter but a 16. 1 percent increase from a year ago. 


A full copy of the OCC and OTS Mortgage Metrics Report, Second Quarter 2010 is available at: 
ht p V occ-go^Vpub1icati on vpublic atioii s -by-t>'pe/otber-p»biicati oiis./]3i ortg age-inetrics-q2- 2010 /mo rtga ge- 
uietac— q 1-2 tni)-pdfpdr . 

' Senouslv delinquenl loans are Ihose niorlgages that are 60 or more days pasl due and all mortgages held by 
baiilcrupt borrowers whose paymeiils are 30 or more days pasl due. 

5 




50 


Table 1. Overall Portfolio Performance 
jPercentede of AH ^(«Tt 9 eoe& in (he Portfoiiol 


1 

1 6/30/08 

9/30/09 

T2/31/M 

3/31MQ 

600/10 j 

IQ 

%Charige 

: lY 

1 %Ch8nQe 1 

Current and Performing 

856% 

87.2% 

68.4% 

873% 

87 3% 

0.1%’ 

•1 4% 

30-59 Days OeHnqueni 

3.2% 

3 4% 

3.4% 

Z6% 

31% 

11 0% 

-3.6% 

Seriously Oellnquer>t 

53% 

62% 

71% 

6.5% 

6.2% 

^3% 

161% 

Foreclosures m Process 

2.9% 

3.2% 

3.2% 

3.5% 

3.4% 

-1 ,4% 

161% 

1 Overall Porttollo Performance {Numtrer of Mortage® in (he Portfoliol 1 

Current and Performing 

29,962.265 

29.666,568 

29.217,743 

29.574,957 

29.483.014 

-0.3% 

■1.6% 

30-59 Days Delinquent 

t. 078.563 

1.154.825 

1,138,822 

939,306 

1 .038.422 

10.8% 

-3 7% 

Seriously Delinquent 

1,796.532 

2,1(1.586 

2.388.938 

2.210.393 

2.083.505 

-6.7% 

166% 

Foreclosures m Process 

992.554 

1,091 .620 

1.079,386 

1.170,785 

1.149.770 

-1 8% 

158% 


lieleiiiioii Achons 

As shown in Table 2. servicers implemented 902,800 permanent loan modiHcations 
(shown as "Other Modifications" and “HAMP Modifications") over the past five quarters 
with HAMP modifications accounting for approximately 26 percent of this total During the 
second quarter 2010, servicers initiated or implemented 504,292 home retention actions This 
included 273.419 HAMP and other permanent loan modifications, an increase of 18. 1 percent 
from the first quarter of 2010. Loan modifications implemented in second quarter 2010 
represent 13.1 percent of seriously delinquent borrowers, up from 7 9 percent in the second 
quarter 2009. While the number of permanent modifications increased, the number of trial 
modifications and other payment plans declined as servicers worked through their portfolio of 
seriously delinquent mortgages to determine borrower eligibility under HAMP and each 
servicer’s own proprietary loan modification programs 


1 Table 2. Number of New Home Retention Actions | 


6/30/09 

0/30/09 


3/31/tO 

6/3U/10 1 

IQ 

%Ch8rH36 

' 1Y% 1 

1 Chancm I 

Olher Modificabons 

142,362 

130,464 

103.617 

131.207 

164,473 

25.4% 

15.5% 

HAMP ModKIcalfOrrs 

- 

783 

20,679 

100.269 

108,946 

8.7% 

- 

Other Trial Period Plans 

64.201 

127,902 

96.046 

101.764 

73.673 

-27 6% 

148% 

HAMP Trial Perx>d Plans 

79.994 

272,709 

259.015 

188,503 

64.666 

-65.7% 

-19 2% 

Paymeni Plans 

131 .974 

163.551 

121.722 

120.567 

92.534 

-23.3% 

-29 9% 

ToUl 

418331 

695,409 

601.061 

642,330 

504 292 

-21.5% 

20-5% 


6 






51 


Changes to Borrowers ’ Monthtv Payments Residtinn from Modifications 

Early in the mortgage crisis, servicers’ informal payment plans and loan modifications 
were done in low volume and often resulted in mortgage payments that increased or did not 
change. This traditional approach to loss mitigation gave delinquent borrowers experiencing 
temporary financial problems a chance to catch-up on making their loan payments. However, 
as the mortgage crisis deepened, unemployment climbed, and the number of delinquent 
borrowers increased to unprecedented levels, it became clear that more formal and permanent 
modifications were needed. The OCC’s mortgage metrics data provided factual evidence that 
loan modifications completed in 2008 were experiencing high re-default rates. As a result of 
those high re-default rates, in March 2009, the OCC directed the largest national banks to take 
corrective action to implement loan modification programs designed to achieve more 
sustainable modifications. 

As a result, servicers have focused efforts on improving the quality of their loan 

modifications and the performance of those modifications over time. This is evidenced by the 

increase in modifications that are reducing borrowers’ monthly mortgage payments and the 

corresponding decline in re-defaults (as measured by serious delinquencies) subsequent to 

modification since the OCC’s direction to servicers in 2009. As shown in Table 3, mortgage 

modifications that lowered monthly principal and interest payments increased to more than 90 

percent of all modifications during the second quarter 2010. The emphasis on payment 

affordability and sustainability has resulted in a 62 percent increase in the average monthly 

savings in mortgage payments from mortgage modifications from a year ago. As shown in 

Table 4, modifications made during the second quarter of 2010 reduced monthly payments by 

an average of $427. Further, 56 percent of the modifications made during the second quarter 

reduced the borrower’s monthly payment by 20 percent or more, representing an average 

savings to the consumer of $698 a month. These actions for more sustainable payments are 

7 



52 


also reflected in lower re-default rates for more recently modilled loans. Modiflcations made 
after the end of the first quarter of 2009 have experienced about half the re-default rates of 
modifications made prior to that time ’ 


Jabi6 3. Changes in Monthly Principal and Interest Payments Resulting from Modifications 
(Percentage of Modificalions)* 



1 6^30(09 

900/06 

12/31/00 

3/31/10 

e/30/10 

i i 

1 %ChdRge 

1Y 

‘f^Change 

OecreasM by 20% or 
More 

38 8% 

37 0% 

41 8% 

54.9% 

56 4% 

2.9% 

45 5% 

Decreased by 10% to 
Leu than 20% 

19.6% 

164% 

191% 

177% 

17 6% 

•0 4% 

•102% 

Decreased Lees than 
10% 

199% 

24 4% 

21,1% 

149% 

161% 

61% 

-193% 

Subtotal for Decreased 

784% 

79.7% 

82.0% 

874% 

90.1% 

3.1% 

16.1% 

Unenanped 

43% 

3.6% 

4.8% 

27% 

1 9% 

-30 6% 

•55 8% 

IncTMsed 

17.4% 

16 8% 

13 2% 

9.9% 

80% 

•189% 

•54 0% 

Subtotal (or 
Unchartged and 
Increased 

21.7% 

204% 

18.0% 

12 .e% 

9.9% 

•21.4% 

•64.4% 

Total 

100 0% 

100 0% 

100.0% 

100.0% 

100.0% 




(Number of 


Decreased by 20% or 
More 

54.860 

48.151 

51.036 

126.379 

153.730 

21 6% 

180 2% 

Decreased by 10% to 
Less than 20% 

27.6SI 

23.786 

23.338 

40.663 

47.075 

17 7% 

72 9% 

Decreased Less than 
10% 

26,213 

31.707 

25.748 

34.271 

43,827 

27 9% 

553% 

Subtotal for Dccrused 

110,764 

103.644 

100.122 

201.313 

245.432 

21.9% 

121.6% 

Unctiai> 9 ed 

6.036 

4,630 

5.622 

6.273 

5,136 

181% 

•14.9% 

Increased 

24,665 

21 .629 

16.142 

22.750 

21 .631 

-4 0% 

•11 5% 

Subtotal tor Unchanged 
and Increased 

30,703 

26.459 

21 964 

29,023 

26967 

-7t% 

-12.2% 

Total 

141.467 

130,103 

122.086 

230,336 

272.399 

18 3% 

92 6% 


‘Payment change information was not reported on 6d5 modifications m the second quarter or2009; 1.144 In 
the third quarter of 2009. 2,210 in the fourth quarter of 2009; 1.140 in the firs! quarter of 2010. and 1.020 in 
the second quarter of 2010 


Table 4. Average Change in Monthly Payments Resulting from Modifications 
All MociTitsiiians 


' 

6^30/09 

9G0/Q9 

12/31/09 

3/31/10 

d/ao/io 

IQ 1 

'•-jChar^e 1 

I I 

I S$Ch8nfl8 

Decreased by 20% or More 

S617 

$623 

S626 

$664 

$698 

50% 

131% 

DeerMsed by 10% to Less 
than 20% 

$193 

$196 

$185 

$169 

$167 

1.2% 

•29% 

Decreased Less than 10% 

$61 

$55 

S62 

$67 

$68 

08% 

If 7% 

Unctianged 

- 

- 

- 

- 

- 

- 

- 

Increased 

$145 

$146 

$153 

$163 

$132 

•19.0% 

•8 7% 

Overall 

$264 

$258 

$290 

$392 

$427 

8 9% 

61 .6% 


’ -W onct OTS \/tvtgage .Uen-fcs. Secttnd OtHnier. page 7. 

8 





53 


Home horfeilure Aclioiu SItiirl Sakx. DeeJ-m-l.ieti-ot-l oivcIosiiivy an/ 
loreclosiires 

As previously noted, mortgage servicers generally do not proceed with home 
forfeiture actions until they have evaluated the borrower’s eligibility for a loan modification 
that would allow the borrower to stay in his or her home Unfonunately. loan modification 
programs cannot help borrowers who simply cannot make even reduced mortgage payments 
In these cases, servicers turn to home forfeiture actions to protect the interests of lenders and 
investors 

Completed home forfeiture actions — foreclosure sales, short sales, and deed-in-lieu- 
of-foreclosure actions — totaled 221,474 during the second quarter, an increase of 14 2 percent 
from the previous quarter (see Table 5). Short sales and deed-in-lieu-of-foreclosure actions 
increased significantly during the quarter, but they remain only 26 percent of home forfeiture 
actions overall While home forfeiture actions increased in the second quarter, servicers 
implemented about 2.3 times more home retention actions — loan modifications, trial period 
plans, and payment plans — than total home forfeiture actions 


Table S. Completed Foreclosures ami Other Home Forfeiture Actions 



6/3(VDg 



3/3VtO 

6730/t0 

1 

1 3tCtrariac 

IV 

Completed 

Foredoeuree 

106.D04 

iiB.eoe 

126,659 

152,654 

1S2.B12 

67% 

53.6% 

IMw SMrt Saiee 

2S.12S 

30.766 

37,563 

40,043 

56.926 

42.2% 

126 5% 

New Oeed-in-ijei>-o>- 
Forectaeure AcUone 

1,120 

1.233 

1.054 

1.165 

1,738 

46.5% 

55.0% 

Toni 

132,232 

isQ.eos 

167.496 

193,862 

221 ,474 

142% 

67 5% 

Newly in4jBted Home 
Retention Actione 
Relittve to Completad 
Foreclosures end 

316.5% 

461 7V. 

358 a% 

331 3H 

227.7% 

-313% 

-26.1% 


Otr>er Hoitm Forfatture 


Aci(on& 


g 





54 


The number of newly initiated foreclosures decreased by 2 1 .2 percent, to 292,072, 
during the second quaner of 2010, the lowest level in more than a year The lower number is 
partly attributable to the increase In permanent modifications made during the quarter In 
addition. HAMP guidelines now preclude the servicer from initiating a foreclosure action 
until the borrower has been determined to be ineligible for a HAMP modification Similarly, 
the number of loans in process of foreclosure decreased by 1 8 percent from the previous 
quarter to 1.149,770, reflecting the increases in permanent modifications and completed 
foreclotrures during the quaner as well as the drop in newly initiated foreclosure actions 
Notwithstanding these positive trends, we expect the number of foreclosure actions will 
remain elevated as the large inventory of seriously delinquent loans and loans in process of 
foreclosure works through the system 


Table B. Number of Newly Initiated Foreclosures and Foreclosures In Process 
Mumoerof Ne^iv truitwrn FTMvi^urc>$ 



e/30/09 

9/30/09 l2i35/09 3CTM0 6^0/10 

io 1 

, 'J/iChapQ# 

1 1 

Total 

366.226 

369.209 312.520 370.536 292.072 

•21.2% 

•20 9% 

1 1 

Total 

992.554 

t.09t.820 1.079.386 1,170.786 1,149.770 

-1.8% 

15 8% 


OCC Supen'isory Efforts 

I mphosis I/ll Siisiamahle l.ouii Moi/ificalioiis and Acciirale I 'liiaiiciul Hcmrlote 

As the volume of problem loans surged to record levels and has worked its way 
through the financial system, servicers have struggled to maintain the needed capacity and 
resources to effectively deal with the number of consumers who require assistance We have 
used our examination process and our Customer Assistance Group (CAG) to address issues as 
they have arisen 

Our primary supervisory focus in assessing how servicers work witit borrowers 
experiencing payment problems over the past two years has centered on their efforts to offer 


10 





55 


sustainable loan modifications that avoid foreclosure and allow troubled borrowers to remain 
in their homes. As previously noted, when our mortgage metrics data showed that an 
inordinately high percentage of loan modifications made in 2008 were re-defaulting, we 
directed large national bank mortgage servicers to take corrective action and revise their loan 
modification programs to produce loan modifications that resulted in more sustainable loan 
payments, In most cases, this requires concessions on the terms of the loan, rather than 
simply granting a borrower a payment deferral that capitalizes arrearages, which was typical 
in many traditional modifications. In addition, in our supervision of national bank mortgage 
servicers we have issued numerous “Matters Requiring Attention,” requiring improvements in 
servicers' loan modification operations and increased staffing. 

Some observers have stated that mortgage servicers have an inherent conflict of 
interest in working with borrowers to modify a first lien where the servicer holds the second 
lien on the property. In general, all other creditors benefit from a modification of the first lien 
since the modification puts the borrower in a stronger cash flow position, and makes the 
borrower more likely to be able to make payments on other debts. A conflict of interest could 
arise if the second lien holder were trying to overstate the second lien’s carrying value (and 
under-allocate loan loss reserves) for a troubled borrower. The OCC has addressed this 
potential conflict by directing that second lien holders must take steps necessary to understand 
any potential issues with the first lien and ensure that carrying values and loan loss reserve 
levels reflect all risk in the transaction - including any problems the borrower might be 
having on the first lien, even if the second lien is performing as agreed. 

The volume of current and performing second liens held by national banks behind 
delinquent or modified first liens remains relatively small. The OCC analyzed second liens 
held by national banks and matched more than 60 percent of them (S293 billion) to first-lien 

mortgages. Of these 5,000,000 matched second mortgages, only about 6 percent, or 235,000, 

11 



56 


were current and performing but behind delinquent or modified first liens. The balance of 
those current and performing second liens behind delinquent or modified first mortgages 
totaled less than $18 billion. The OCC has directed national banks that hold such performing 
second liens to properly reflect the associated credit impairment for those second liens through an 
increase in the allowance for loan losses, or in many cases, a charge-off of the loan where 
appropriate, 

()versi2hl of and Responses to Foreclosure Documenlaiion Issues 

When reviewing a bank’s foreclosure governance process, such as practices involved 
with the preparation and filing of affidavits for foreclosure proceedings, examiners determine 
if the bank has appropriate policies, procedures, and internal controls in place to ensure the 
accuracy of information relied upon in the foreclosure process and compliance with federal 
and state laws. An appropriate governance process would include the testing of those policies 
and procedures through periodic internal audits and the bank’s on-going quality control 
function. In this instance, however, neither internal quality control, internal or third party 
audits at the largest servicers, nor our CAG data revealed the foreclosure document 
processing issues. 

When the problems at Ally Bank - an institution that is not supervised by the OCC - 

became public, the OCC took immediate action to determine if procedural breakdowns at 

national bank servicers could be resulting in similar foreclosure affidavit problems. On 

September 29, 2010, we immediately ordered the eight largest national bank servicers to 

conduct a comprehensive self-assessment of their foreclosure management processes, 

including file review and affidavit processing and signature. We also made clear that where 

deficiencies were identified, the servicers needed to take prompt action to remedy any 

improper documentation, including as applicable, making appropriate re-filings with local 

courts. Equally important, we also directed banks to strengthen foreclosure governance to 

12 



57 


ensure the accuracy of the information relied upon in the foreclosure process and prevent re- 
occurrences of documentation problems. 

Concurrent "with this directive, we began planning on-site examinations at each of 
these large servicers and their mortgage servicing operational centers. Our objectives are to 
independently test and verify the adequacy and integrity of bank self-assessments and 
corrective actions; the adequacy and effectiveness of governance over servicer foreclosure 
processes to ensure foreclosures are completed in accordance with applicable legal 
requirements and that affidavits and claims are accurate, and to detennine whether troubled 
borrowers were considered for loss mitigation alternatives such as loan modifications prior to 
foreclosure. 

These examinations are now underway at each of the eight servicers. The examination 
teams include examiners from the OCC, plus the Federal Reserve Board (FRB) and Federal 
Deposit Insurance Corporation (FDIC). The OCC has approximately 100 examiners working 
on this effort. Legal support is provided by staff attorneys from both the OCC and FRB. We 
have established an interagency foreclosure review team to provide oversight and direction to 
on-site examination teams to ensure consistency in our examination work. 

As noted above, a key objective of our examinations is to determine the adequacy and 

effectiveness of governance over the foreclosure process. The scope of work to assess 

governance is extensive and includes an assessment of each servicer’s foreclosure policies 

and procedures, organizational structure and staffing, vendor management, quality control and 

audit, loan documentation including custodial document management, and foreclosure work 

flow processes. As part of these reviews, examiners are conducting interviews with personnel 

involved in the preparation, review, and signing of foreclosure documents. Our objective in 

conducting these interviews is to understand current and past practices with respect to 

preparation of foreclosure documents, whether the staff conducting these functions had 

13 



58 


sufficient knowledge and training, including training in relevant requirements, to effectively 
complete and sign-off on foreclosure affidavits, and to help assess the underlying cause of any 
identified deficiencies. 

Examiners are also reviewing samples of individual borrower foreclosure files from 
judicial and non-judicial states that include both in-process and completed foreclosures. In 
reviewing these files, examiners will determine whether foreclosed borrowers were 
appropriately considered for alternative loss mitigation actions such as a loan modification. 
Examiners are also checking for the following; 

• A documented audit trail that demonstrates that data and information (e.g., amount 
of indebtedness and fees) in foreclosure affidavits and claims are accurate and 
comply with state laws; 

• Possession and control over the underlying, critical loan documents such as 
original note, mortgage, and deed of trust to support legal foreclosure proceedings; 
and 

• Evidence that the affidavit and documents were independently and appropriately 
reviewed, and that proper signatures were obtained. 

In addition to these loan file reviews, examiners will review the nature, volume, and 
resolution of foreclosure-related complaints. These will include complaints received by the 
OCC’s Customer Assistance Group as well as complaints received by the banks. 

Finally, examiners will assess the adequacy of each bank’s analysis and financial 
reporting for the potential adverse impact on the bank’s balance sheet and capital that may 
arise from the increased time and costs needed to correct any procedural errors; losses (if any) 
resulting from inability to access collateral; and expected litigation costs. We are directing 
banks to maintain adequate reserves for potential losses and other contingencies and to make 


14 



59 


appropriate disclosures, consistent with applicable Securities and Exchange Commission 
disclosure rules. 

Using our authority under the Bank Service Company Act, we also are conducting 
interagency examinations of two major non-bank mortgage service providers. The OCC, in 
coordination with the FRB, FDiC, and Federal Housing Finance Agency, is leading an on-site 
examination of the Mortgage Electronic Registration System (MERS), A key objective of the 
MERS examination is to assess MERS's corporate governance, control systems, and the 
accuracy and timeliness of information maintained in the MERS system. Examiners assigned 
to MERS will also visit on-site foreclosure examinations in process at the largest mortgage 
servicers to determine how servicers are fulfilling their roles and responsibilities relative to 
MERS. 

We are also participating in an examination being led by the FRB of Lender 
Processing Services, Inc., which provides third-party foreclosure services to banks. 

We expect to have most of our on-site examination work completed by mid to late 
December. We then plan to aggregate and analyze the data and information from each of 
these examinations to determine whether or what additional supervisory and regulatory 
actions may be needed. We are targeting to have our analysis completed by the end of 
January. 

We recognize that the problems associated with foreclosure processes and 

documentation have raised broader questions about the potential effect on the mortgage 

market in general and the financial impact on individual institutions that may result from 

litigation or other actions by borrowers and investors. Obviously, for a host of reasons - from 

fair treatment of borrowers to the fundamentals of the mortgage marketplace - mortgage 

servicers must get this right. We are directing banks to take corrective action where we find 

errors or deficiencies, and we have an array of informal and formal enforcement actions and 

15 



60 


penalties that we will impose if warranted. These range from informal memoranda of 
understanding to civil money penalties, removals from banking, and criminal referrals. 

Conclusion 

The OCC is focused on identifying and rectifying problems so that the basic function 
and integrity of the foreclosure process is restored; the rights of all homeowners subject to the 
foreclosure process are protected; and the basic ftinctioning of the U.S. mortgage market is 
stabilized. As we move forward we will continue to cooperate with the many inquiries and 
investigations that are taking place and provide updates to the Congress, 


16 


Mr. Conyers. Our next witness is Judge Dana Winslow, who has 
served as the justice in the New York Supreme Court for the past 
14 years. He has heen at the trial level of more than 1,000 mort- 
gage cases and has a wide experience of what actually happens 
during this foreclosure crisis. 

We welcome you this morning. 



61 


TESTIMONY OF THE HONORABLE F. DANA WINSLOW, SU- 
PREME COURT JUSTICE, NEW YORK STATE SUPREME 

COURT 

Judge Winslow. I thank you very much and all of the members 
of the panel for affording me this opportunity. 

I have decided, based upon the presentations made and the com- 
ments delivered already, that the level of sophistication is such 
that I can proceed to certain areas without the need for what 
seems to be repetition. 

First, I do think that responsibility, not blame, has to be deter- 
mined, and I think we will find that the responsibility lies with 
lenders, lenders’ attorneys, the investment community including 
Wall Street, mortgage and real estate brokers, the business com- 
munity, borrowers, and I say with no less the courts themselves, 
the judiciary, is responsible as well for this problem. 

The court has accepted foreclosure applications without scrutiny. 
An environment of trust has prevailed rather than an examination 
of the submissions and a requirement to submit the required proof. 
Recently title companies have been expressing reluctance to ensure 
foreclosed properties because of questions about the status of title. 

I am going to go basically to my conclusion so that I have suffi- 
cient time, and I think that it will also help to show why I am say- 
ing what I am about the particular problems within the industry. 

I think the ultimate resolution rests in a paradigm chain which 
focuses upon the defendant owners’ ability to pay rather than the 
plaintiff mortgagees’ artificial requirements. For example, if the de- 
fendant homeowners are able to pay $2,000 per month, having a 
present obligation of $3,500 per month, a loan modification for a 
period of 2 or more years at $2,000 per month would avoid the 
plaintiff mortgagee’s costs as well as the mortgagor’s costs of fore- 
close and property maintenance, avoid the potential loss of prin- 
ciple arising out of a forced sale in a depressed market, and allow 
the defendant homeowners to remain in their home. This approach 
could ultimately reduce the cost to lenders, borrowers, stabilize the 
real estate market, and do what I think is most important: promote 
equitable predictability. We must have predictability, but it cannot 
be unfair. 

Why this result? Because the examination has focused on the 
mortgagee all along. We look at what is wrong with the mortga- 
gees’ submissions, and we do not find that we are able to effect res- 
olutions. All we are doing is forestalling or deferring the inevitable. 
If a prima facie case requirement to entitlement remains with the 
mortgagee and after the acceptance of such proof without refuta- 
tion by the homeowner, then justified dialogue can commence with- 
out regard to considerations of possible deficiencies of the plaintiff 
mortgagee. 

What do we see on a regular basis? Well, what we see is that 
many of the affidavits attesting loss of note — and I am taking a 
step back — are inaccurate, clearly inaccurate on their face. Take a 
step back because in New York and in many States, a mortgage 
cannot be foreclosed without possession control of the note. 

We find gaps in the chain of title, and I refer you to my attach- 
ment B in which there are multiplicity of names contained within 
the caption; and to attachment A, which agonizingly, but I am 



62 


afraid accurately, demonstrates the course that both a mortgage 
and note takes place in this mortgage climate. 

Assignment documents are frequently notarized several months 
after the assignment was purportedly effected and are notarized in 
blank. 

MERS, which needs to be mentioned, has, in fact, changed dras- 
tically over the years. I have seen them starting in 2003 or 2004 
and have received information from them. 

I also notice my red light. And though from my perspective I usu- 
ally am not as aware of it as I am now, I will stop at this point 
to say that the necessity for an examination of precisely what 
MERS is allowed to do, whether MERS is permitted the oppor- 
tunity to foreclose, foreclose on behalf of an assignee as opposed to 
the original lender. 

And I do ask you all to in closing consider one issue that wasn’t 
mentioned, and that is that many people need to move from one 
community to another for a job. They can’t. They can’t move to get 
employment because they can’t sell the house that they are in and 
move to another area. So that is another issue that I have not seen 
mentioned, and I ask for questions galore if the panel is so in- 
clined. Thank you. 

Mr. Conyers. Thank you. Judge Winslow. 

[The prepared statement of Judge Winslow follows:] 



63 


Prepared Statement of the Honorable F. Dana Winslow 

F. DANA WINSLOW 
NYS SUPREME COURT JUSTICE 
Before the House of Representatives 
DECEMBER 2, 2010 

ON 


CAUSES AND 
EFFECTS OF THE 
FORECLOSURE 
CRISIS 



64 


HO! ISb or Rl PRhSEm-ATIVES COMMITTEE OK Tll£ JUDICIARY 
K)KK(':i.:or>Ei>J!)S’l.Icn; 

CAUSES AND EFFECTS OF THE FORECLOSURE CRISIS 

Hon. F- Dana’ Wiui'low 
Doeemberi.TOK) 


BACKGROUND 

1 1 JuslicetENY State Supreme Court te ptaftlA^'ears. '(Highest trial court witliiiiNYS 

.s'ystem.) 

U Forroer pressdent of toe NYS Supreme Court Justices* Assactatton and present mejtaber of 
±e Executive Coniraittee.. 

l.T Ptetdouss- ptacticing attorney; federal , securities area; commercial, mvijiicipak critainat and 
■civil litigstionin Slate and Federal Courts. 

1,4 On the bench; Presided over more than lUdO aiorlg,ag;e foreclosure cases and the inaas ro- 
ass^-Ssmtiit'casete 2003-2005- which provided insigbiinto ltome;va|ue, 4 .pliLi>n'g:feiahil. 

OVERVIE*' -FROM COURT’S PERSPECTIY'E 

2,1 Volutne oIForecl osures, Ba-seJupon anecdotal svidence, ap 5 )ro'.Kimate'Iyvl t“/S af all 
in Nasisau County arc either in forcclo.sure or have bcenindefault forOO days ormofe; 
emirt statistics show that 3.12.% of al! of Ute homes in Nassau eouhty (ap'pro'xiEiatet}; 
360,000) are tn foreclosure, Nassau Cctmlj Supreme Court (2010) statistics: 

3,U1 Yearto date filiiigs:.4.625 

ST a Total pending: 1 l.Hd 

2 2 Problems seen on a recurrent basis , Oeticieuciesordclecta in: (il the Plamti-iT Mortgagee’s 

proof of its right to Ioreclo.se and (ii) lire Defendant Homeowners’ notice ol'a forcelosure 
and their -oppmtisnity to attempt a loan iiiadific!iJiD.n orAvorkout " or otherwise firotect -their 
intsresss. 

2 I Guid uiv Prinei pie. Ca ult able. Prcdietabilitv : Plaintiff MortEagee. Detendant Homeowner, 
and the Real F state industry- as a whole, must Snow vfith: greater certainty what the probable: 
iHilciimt' wall he Ipliowinu the commcBCement of aj 0 rcclo.sure action: a prcdictahiliiy ihai i„ 
fa.u: and suslainable. 



65 


mortgagee iSSlJtS 

i t UtieertamtV'ia aro c ess and g u tcome , 

j 1 ] Itniterlaln recjuiremcflts- Ja the paiiutbe JutJtisiary imy have ina<i^ 

contribiUed iothe creation af the &tecIosure-Eris!S,% accepting, without ejuestion, 
the siihinissions of lending tostitutions seeking foredosure. Cooris have eoiae to 
recogiirze the need to <;cruttnize the ewdentitny submtssioti of the PUintiff 
Martgagee before pniceediDg Wilh foteciosurei and to define the iiatureof the pruof 
required; that iS- tire documents that must be submitted to continence the action and 
apply form Order of Refereneeftbe-Coiirt Ottler in NY Stale providing for the 
computatitin of the Defendant Hotneowtict’s debt by a eourt-appouiied referee}, 

3.1 .2 UiisatBliictorj' Options. Plaintiff Martgagees are ambivalent about Iqterfci.sure. 
Ibey want to stop the financial diaui af-retaining homes in their default im emerv , 
(on which iliey must continue topay taxes midinsiirancepremiiniishyet they koyw 
that selling the property in fotcclosute results in a greater inventory of homes and a 
depression of coiumnnity^ property values, forced sale does not relieve them Of 
their pfopeHy-i-Blaled expenses, suice in the overwhelming percentage of cases, Ijte 
mottgaged propent- is sold to a subsidiary or a company coEitroJ lsti by the Plaintift’ 
Mortgagee, 

3a ll3i l:Tb.i)nsurable properties. I itle coutpanies have been expressing, incmuaiiig 

reluctance 10 insure foreclosed properties, due to uncertainty regacduig tire 
legitiniaoy of the ttansfet of, the property to a third party, 

3,2 Pntof of Slandiiia ^ Ownership ot the Nolo and Mortgage . .Standing ha.s bscomcisucli a; ; 

pervasive issue that I Irequently use the term “pieM™ptive mortgagee ill areclpstire’' »:;■ . 

describe the Plaintiff Mortgagee. 

j .2,1 Pos.se.vs'ion of the actual Mortgage atid the actual Note 

3.2.1! Ksihiie ,10 produce Note or produebon of vyrong Note, 

3.2 1 ,3 Affidavits of ncn-po.ssession ot loss ofNotes -- offered rn lieu of the Note, 
Who has the burden of proof?' Are there presumptions available to eiiher 
party? 

3.2.2 Gaps in the chain of title. Missing assignments - effects on pnoc imnamed 
inoTtgagees and their rights, f bavC obtained front llse County Clerk priniouis oi 
mortgagee title that have differed substantially &oni the information provided by 
Ptaintiff Mortgagees m foreelosiire applicalions. 


2 : 



66 


Retroactive AvviKDineiits. Occurs aiien. atthe time of dte cornraeacemeEit < if e 
furecloMiie jclioa, the foreclosing Plaintiff Mortgagee did rot own the Note and 
Mortgage. 1 he Note orMortga^e are.subsBqueatlj assigned to the Plajntifl 
Mortgagee tiai ’inadB effective "as of’ a date prior to coniinercemcm of the action. 
Some NY CoixrtsaTo jtDWhnldmg that sach reiroacUve.assignriicnisdo not confer 
standing upon ar assignee mortgagefc. I did so iii Jaiinaty 201Ch in Diet BaiA of .Ndir 
YQrkas ffuBee v: iVrtgt Nassau-GountylndeitNo. 0U)72eil'7. 

,J. Roho“S!gninE. Qiieshanable validity of signatures on assignments and affidavits 
aileSTtag 10 ownership of the Note andiMoitp^ge. EKainples. 

3.2.4. 1 Signed by; ‘'DiJiy Anthorted tMBceri*’ "Authorized Signer." “A,ttomsy-m- 

FaCi” or "Authorized . Agent ” What do these.litles mean? Whatisllte functiiin 
of the. person signing the doCumenB. tatd wliat is the .basis of their pei-sonal 
knowledge? 

3.2.4o! SEsrao person signs several documents, in several different oapaeihes: e.g., 

“Vice President of [As.signor Martgagee]” is also the “Assistant Secretary of 
the Serv'icar ■■ for the Plaintiff Mortgagee, and an employee of the taw firm 
bri aging the foreclosure aotton. 

5 faiidiij of notary stamps oh assignments. 

3-2.5. 1 .Assigwnent docunient-s notarized several montjis affefflifeiasfig^^^ 
piirporiccUy effected. 

.3 :2v5:;2 SdW - name of the person whose signaiiire was puipurtedly 


wiincssedis omitted. 



;i .Servicers. There is no precise deSnitton. Mow aptly., there are mtcrchangeable 
definitiODS In one instance, the servieer collects the mortgage .payments from the 
homeowner. Jit another, the stirvicet appears to be the ec[Lutahle owner of the 
mortgage, and in a third, the servicer CQtntfJsneea a foreclosure action on behalf of 
the equitable owner, la one instance, I asked, the attorney for the pimntil'f to Loll me 
whether he represented the PlaintiffMortgagee or the servicer and he said liiat he 
did not know.. 



67 


;; :■ : t'ifiininit Resishation SyWems {‘'■MKliS"); 

3 3,2;1 Histop;: My olBccJias beeB inconMntmication with MJbRS smts; 2004. 

According tu MERS counsel, KffiRS. owned by MERSC-'ORT. was forrat’d m 
IIOS and, as of 1997, lias acted only as a rnoininEe.” to iacilitate the Lnmslisi ol 
mortgages. 


3.3 ,2,2.1 nvlTicultj' arises Mmultipteimrecordied transfers of the legal 

ownership of the Mortage fwith or without tliea’ansferol the Note! 
tUlcl widi traoing and prating the chain ot title. 1 refer the Corantittec 
to tlie attached diagram [Attachment obtained uli the interact, 
which ! believe to be both a noitscnsica! and accurate depiction of the 
problems coneeraing mortgagee; chain of liite. 

,7t3:;2l2.2 OBclear whether MERS is (by virtue ofthe nghls granied by the 

Homeowner in the initial Mortgage insiruraem) the nominee ;for the 
initial Mortgagee only, or fot all subsequent Mortgagees, indiidnig the 
unnanied. unrecorded Mortgagees in the chain offttlSv and the 
Mo,rtgagee who holds the beneficial interest at the time of foreclosure.: 

;if:it;2;2,3 i MERS is named as Nominee for purposes of rBCQiJing;the;.ldorteagO» 
MERSfelies upon that status in britiging foreclosure .astiojis in.itg 
own name, as Plaintiff It fe unclear that, tlie designaiiorijas fJornmee 
for recording pmposes gives MERS the right m,/flrqcfese. 

3.3.2, j, 4 MERS appears on both sides of the foreclosure action.' 1 ha've seen 

actions 111 which MERS, has brought the action :a,s plaintiff, giidpamed 
itself as a defendaht. 

j Can deficiencies be addressed by an iUlongc,, with or without the approval or 

.signaliife of the Homeowner? This question has not been answered by the judickiy 
or the legi,sFature: 

3,4 • rackaaine" of Mortgages , lire crsattiM. of poolsof mortgage, s,t 5 'ptoaliy with tranehes, ie, 

CoUateraiszed Debt .Obbgatian.s (“CDOs''':}; 

3 4.1 Problem; whether 6r nod the ■T>oolTtthrusfVBr •■fund" ba.s the ulliraate right to 
select specific mortgages ftoiri its tuBets'and Iheieaher iorcclose. Does the Caiirl 
have It' make independent defenninEtioas through ahearing process? 

> 4 2 Example, 1 refer the Committee lo.ihe aliaeliedeaplion. w'hicli is tyincal ol 
foiedosttre actions arising 6om GDOa|Atlachmenl "B’'). 

4 



68 


3.5 Other Pnma i-acie Proof. 

.*.5,1 Genera! problem. Fareclosures processed by law lirms m bulk' : m\ ottice .has 
cc-mpai‘ed foreclosureapplicalions; tteit. vary Ulile Drool at all from eaeii ouier aud 
occasionaliy contain language inapp).iEabIe to the foreclosure being considered. 

1.1,7. SVunS'of debt. 

3.52 1 Case example. Wile signed Mortgage tat not. Ibe. Note, I held dial the Plaintifl 
Mortgagee must provide, at tuiaiaium- an explanation. Without .such 
expiailatioB, there would be distirissal. Demonstrates a dual problem; I irst, 
there is no conliriinity wifii die recording act (the Mongugc does not match the 
underlying debt obligatiott); arid secorid, it allows the lenders to issue 
mortgages with the .knowledge that one of the. homeowners is nut creditworthy, 
and 10 ' show ovei-stated income or payment requiteraenis on the closing 
.statements for the loan. 

3 5 3 AniBiint due. 

3 .5.3. r Rotosig - the individual signing the affidavit has no knowledge of tlie ■ ■ 
tequitod .faels, 

' .JvjaS :? must demonstrate proper acctmtUmg and crediting uf 

payittents, particularly where there have been multiple mottgugees anchor 
servicers. 

4 homeowner. ISSUBSl 

4 1 Genera l The iiWinate goal is a process which ts equitable and predictable, aftording the 

Defendant Homeovyiners suificient and accurate information, and an oppcctunity to p,Tote.ct 

their interests. 

4.2 Knowledge of the Lawsuici Service of Process ; 

4 .2 1 Aefuai kinuvkdgc. The laws governing service of process are dchigiisd to provide 
(lefai dants with actual notice of the iawsBit whenever possible; Probl ems arise in 
determimiig whetliet or not the DefeMiantUoraeowneE has received octaal notice 
Aflidavits of process servers are often incomplete, umn.(ormativB or defscUve on 
their .face,- 




69 


2 SubsJitiited sLTvtce 

4 2,2 I N Y s Ci-vil Prdctiei, l.aw and Rules fCPLR’") allows semte bj nisthods inhcr 
dian in-hand delivery to Defendant dlomcowner. 

4 2 2 1 1 GPLR 3a8f23 Delivenr topersoo of "Saitabic Age and Discieiiun" at 
the residence, , 

4.2.2. !.2 dPLR 30S(4)'lNai! attdMatr’--af0xalio!i to the doorof the 

refiidernie, 

4.2.2.2 Problems deteimining wliether the sumiiions and ccmplaint were ultimately 
rece i ved by the Defendant Homeowner. 

11.2.2.2. ) Person who accepts papers is nonwned. iUenufied or describeil The 

recipients areoftBn“}ohiii tot ‘‘Jane’- Doe, identitleJ only as the. 

De.feB.da« Howieowner's “eo-ttnant" or “co-pcenpant,” 

4.2.2.2t2 I'apets aie deKvefed or affixedat an address other Ilian tlife propert) 
being foredosed. No expla.naiion is offered. 

' 4.2,2,2:31 , If pa.pers are delivered to the pioperp; being fdtcclpsed.: It 

always clear that the Defendant, Homeowtlet Stili :ife:ide!i‘ there, taWt 
does not permit subsUtutod service ai the "last known address. 

'4:.2,2,2;4 ' Due diligences Before resorting lo CPhR 304(4j 'Tiail and laail" 
service, process server fails to tirsi use due diligence ro serve tile 
Defendant Homeowner by CPLR 3081 1) service (BCtally handing the 
papers to hitn'her) or by Q’LR 30S(2) substiiuted service. The due 
diligence requirement is not satisfied when these prior attempts. oecur 
on weekdays when the Defendant Homeowner wtiuid be expected to 
be at work or in transitto or tirora work. 

4. 2.3.3 Problems detenniningNon-miHtaty status. 

4 , 2.2,3. 1 1 have seen cascsinwhkhdve. sole proof of non-militaiy status was 

the prijeess server’s observation iJiat the person fothei than the 
Defendant Homeowneik xvho accepted the papers or veriiied the 
Det'endant Homeownet-saddress, was not in milrtiirj uiofinng. 

4 2 2 3-2 Department of Defense eonlirrnation. of rcm-militarj' .status is often 
not provided, and evnen when submitted, vve rarely know' whai 
inforjnaiMn the-PJaiiitiffMoitgagEe provided to the Department ot 
Defense when requesting militatystatris- I have received attldaviis 
stating that individuals with eesmnon names siich as ‘fAndTCw tunes," 
were not. in the military service. 



70 


4 - j Access to 1jE3] f e nreacntauon . Less than 3% of the Deftndaat: Hotn coc'-ners appear w i tli 
counsel. Most of the Detendaut HomeowDersproceedakine, at a difficult time lu their lives, 
fhit «'£' CPI R 3408tbl (apTOiedefendanl tnaj'bepienTiiltEci to jircicecd as a “poor peison ’ 
ami hav'^e coitoscl appointed to-repre&enl htni.t>r,liec). Nassau and Suffolk Caunties tn KA 
have estahbsliecl a pro hoito lmsl representation: program.. 

A 4 MiKMirdiiop .knnlLcationsinegQa atiQna. 

4 4 1 Knew ledge and acce.ss. The Defentoit HcnienwtKrs rarely know whoro to contact, 
ami Tordy have feasonable access to the appropri.ate petsoii in the Plamtiff 
Mortgagee's oiiioe or tlie law Cm reptesentme the Plaiiitill Maagagee. 

4,4.1 I Anonie>',s ptat tieing across the state with multiple offices have often utilized a 

siiigie address, telephone and fex haitibcc which has effectively created paiiiers foi 
Deftndanl Homeovvneis who are trying^ willing, and maybe ahte, to oM'et pajment 
of .cu'rears or acceptable loan modilicalions. The barrier is increased by the 
multiplicity of choices confronted by' a caller reaching an automated phone syaleiti. 

4.4,.l :2;, Access must tnetode the name of a Imowledgeabfe representative of .tlie Plaintifl. 
Mortgiuiee- including counsel or someone who has or can Obtain the necessary 
autiiorhy to proceed with ameaningfui resolution, if vmssible. at the earliest stage, 
,jjf flte pKiceedings. 

4.4,e riaintiff Mortgagee “Had faith.’' CPiR .’hOSfftV’Plaintiff MorTPagsev must 
.participate in mandatoty .settlement conferences, and negonale.ki good iaith for a 
mutually agreeable resolution, mchidirtg loan modification, if possible. 

44.2. J Timely response - A Plaintiff Mortgagee must limeiy acknowledge the .infortmivion 
provided by the Defendant HoiBcovrner and respond to .justified otiers of 
modificaTloTi. There are many' instances ofa PlaltiutTMortgagee refusing to 
consider a Joan modification becaivve the Defeiidant Hoiiieownei's financial 
Intbrtnation was not iip,.to.date, even though the delay was due to the Plaintiff 
Mortgagee's own thilure lo timely respond to the Defendant 1 foraeoWnet. 

4 4.2 2 Short Sale - The short sale contemplates that, the Defendant flonieowner will 
pi'ovida an acceptable contract of sJe to the Plaintiff Mortgagee reducjiig the 
outstaiidmg baiance due. Moreoften than not,, the ultimate contract sabroined lo 
the Plamfff Mortgagee is detcimmed to be unacceptable (too far below market 
value), eventhoughfhedeieniaflaticnofinitrketvalue by the PlamttffMoitgagee 
does noteompoit wiib cmujiarablBsatesiparticularlym a falling maikei. 


7 



71 


4,4 2 3 Prptiicol There must bEsOiJaE'dellaitioii of. and consisteticy in, the miitmta and 
cii'catmtanees in whifch a modiffcation vhEI bo granteo. 

4,4.2.3-l fi/'3T rule: InfoniialpnatocoTadopted by several lenders (iiictadiiig 
Eiiiigrant Mortgage Gempany), 

4.4.2.3.1.1 ReductsoTiorjiiletisfitratetQ:^^^ 

4.4. 2.3. 1.2 Monthly payments equal to or less tban.31% of gross mcome 

4 4, 2.3,2 1 have seen at least twa occasions in which a third party (e.g.. rdative i has 
been potentiaily available as an asset ur mcom.e guarantor, but has not come 
forward becairse foe otttBfia for loan modificalion were unknown. When 
ultimately apprised of the protocol, they were w illing to giurantee the debt 
and offer funds to reduce the anaars. 

4.4.3 Cummiiiiicaeiiiu hrt-akdnwn, 1 oieclosure proceeds while mor.Uhc.uioi.'seil;srm?m is 
pending. In several of my cases, the tnodiflcation and foreclosure were beiog handled 
by separate deparltnents within the same lending institution, and foe .modification’' 
department did not communicate with the foreclo.snre depaiment. fhe forEGlosure 
sale taok place while the Defendant Homeoivnet was waiting for a- response on foe 
mbdifieaftnni, 

4.4.4 Co'nflict of interest. Some aftarncy.s represent the Piatnliff .Mortgagee as well as a i 
second mon,gageC bank named as a defendant Diffenng interests present pateinial 
mipedimBhi fo.modification or settlement. 

4.4.5 Judicial Re.sponse Had faith in settlemeni negonauons has been used m Courts a- a 

ba-sia to VabatB the underlying debt. or interest, or impose substantial: santiiotis. Oitc 
ease was recently overturneti by the .yppellate Division as an inappropriate xua iptmlv 
exercise of ecuitabie power without legal authority or notice to foe parties, /prftijtfcic 
Bank fnwu-i/ortJsAr. 26 Mlsc:3d 717, rev ‘d 2010 WL 4676301 (Noveiiiber 

16, 2010'i.' Another case has ycl to see appellate resolution, Mortgage Cd.- ia 

Carcione, 24 Misc.3<l 161 (Apnl I6i 2Q10> ($100,000 sanction md voiding accrual of 
iilterest) In my view, Ihosiateof foe law t» less ceitam or pTcdictable as a result of 
these decisions: 

4,5 Toreclnsure Rescue Scams Ig.c.. “Straw Man triinsaction'l). In order to avoid foreclo.sure. 
Defendant iToitieuwriei ''sells” propernr to a ’'straw man" who borrows money from a new 
batik to "ptirchase it;"’ Stra w' man rents the property bach to the Defendant Homeowner. 
1‘lamtiri Mortaagee is paid off, biit Defendant Honjeowner is unable to malte the "rent" 
pav nients iu ihe "straw man,’' and W'lnds Upin eticnon procesdings. Defendant Homeuwner 
In.M'.v ;uiv equity of redemption or rightlosuipltiS' moneys that he or she miglit have kid prioi 
to the liar.sacliun, 

■-g" 



72 


5 RFrOMMiNDAIIONS/t ONStDEFuafllONS' 

5 ! Service ot Procggs — In Ely view, NY law-requires the following proof trora Piaiiiiift 

Mortgaireejr who serv’e the summons ami compiamlby a method oilier than in-imnd delivery 
[ev,. CPLR308i?)ajid3CI8{4)j. 

5 1,1 Demonstrate diligent efforts to serve hy: personal deiiveD i 

5 12 Idenlity Ihe fijll naraeofthepeisonueocpniil japsrs, and his Or her relationship 10 the 
Defendani Homeowner. 


5,1.3 Ascertain veriTi and provide docnmeamry praefll , of. the Defeiidaat Homeowner’.? 
current and valid address, 

5,1:4. Provide .crediWe and sulxslantiated proof of the Defendant ilorijeo»mer’ s iip!i-n»i.litaD* 


■ > a Atrornev Certification . Adinmistrative lltder df the Chief Administrative .liidge oftlieCiOWb.i 
dated Oltobei 10, 201 0 - Plaintiff Mortgagee’s counsel in a forectosdte action i? now retjuired , 
to fiteanaffirmation cemfi'ing that counsel ha.s made iiitiiiify to the batiks and lEtidcts„aiid 
carefully teviewd tlie papers, to verify' die accuim’y of documents .ffled .in support of 
residential foieclosmw, . , 


5 2. 1 ■ As of tits efftetive date of this requirement; aitomeys tri over SCfH.of the Nassaiv- 

fOreddsure rnatters lave attempted ro withdraw the pntceeding. at some portion, of 'the 
■proceeding. WitllOUt notificahon to the Defendant Homeowneo this .figute is based 
upori-my owto. anecdotal experience in cases river which ] preside,' as well as 
inf'oniiHtion pnividedby Court officials and Plaintiffs' attorneys. 


5.2.2 In all hew toreclosurc aeitions. corainenced after the effective date of the 

Adrainistralive Order, the attorney certification must be filed with, the initial request 
for judicial interventmn, (If the action was already pending at the efiBcave date, the 
certification nay be made at other stages tti the proceeding, us speciligtl in the 
Adraintstiati ve Order.) Ditesra single certification at one stage of the proceedings 
(e.g- comiTTEncement) satisfy the requirement with tespeci to all subsequent 
submissions? To what extent, and under what circumstances, is an attorney requited to 
update orieatfiim the eertification? pnrtfiBr adnunisIrative and judicial action ns 
anticipated. 


^ 3 ff e ai Property .Action.s and Proceedintrs Law 1303 . ’Notice i equired to ire sen ed 

with the .suminoris and complaint on cofoted paper providing die Defendant Hometm'iier with 
adt ice on how homeowners can 'seek: help and. warning the Defendtiut H’omeavvnej: of 
forcclosuio fc.scue scams. 




73 


5.4 CFLR 34 08 Mapdalwy aelllmiKirtcomereilces in residential Ibleclosiire attuina 

5.5 Prima Facie. Proo t. 

5.5.1 Total “nackagS” .afiould be sabmttl#% befure the Deiettuani 

Homeowner is required to tespand; 

5..5.; The ■‘Stamp ’’ 1 created a stamp ia2007: tAttachmeiit “C"], to be iraeited in all Oedas 
of Reference, which sets forth theniinitatiin requiremctiw of proof to he sufemitted lo 
tiie referee. Substantially the same teqiriremenls have been codtfied m CFLR 340Ste).. 

5.6 Smciions for B ad .Faith . Voiding accnial pf mttaBst dviEjng period of ‘foad faitlt.'’ 


6 ON THE HORIZON 

6:.-l Reverse mortgage s- .Apopiiiar commodity receiving heightened puhlieity, m the past tqti , 
years, partreiiiarly fitr lower income homeowners who have Substantial, eqmly^ in their homes. 

Tile procedures and praoncK for foredosui'c- in Ihis area hare not beep established, If 

permitted under tlie loan, the tmnimiiro requirements for foreclosure upon aieV'drse tnortgage 
whitldseehv to be thesame astwith every other mortgage buL.iii.additiaft should include an 
affidavit of fair piatfet value as of the coramencement of the action. 

6 2 I..IC*,C. Article .1 . Some Plai miff Mortgagees have argued tlia. iltdr status a-s.lt holder of a 
' negotiable injitruBitflt (the NoieTundertrcC .Article 3 atlnw,s them, to proceed in forccloiwe, 

W'ilbfitit proof ef the chain of title '(t.«..,endorsements, intermediate assigittileBls of thoNoie 
aitd Mortgage).' Problems; ftai, a Mortgage is .not a negotiable instrument nnder UCG Article 
3: second, the endorsemem in blaiik procedure, fteqiwitly used by a Pla-intiff M.or(gag,ee, does 
not necessiUily create the elusive negotiable instrument: and third, ut many cases, the Plamtiff 
.Mortgagee cannot produce the Note. 

6,3 Nodtenf. Pendency RPAPT, 1331 requiresplamutfstofilea Notice of Pendency ina 

foreclosure .action at least 20 days before-a final judgment w rendered, A Nonce of Pendency 
is effective for ihtee years trom the date of Elitig [CPLR 6513|. .Successive Notices of 
Pendency may be fileti, evai after a Notice rfPetidency has expired or has otherwise been 
rendered ineffective [t’PLR 65 1 6J- The problem.ari;SES when: Ibtsclosure proceedings 
continue beyond the efteetivc period ofthe Notice of Fendency, andthe Notice of Fcndency 
has not been renewed, or nroof of such renewal has not been provided to .ihc. Court. Does such 
failure to timely renew tlie >101108 of Pendancy void the proceeding ub initid, or i s it a 
correctable deflDiency vvh ieh can be rectified wdthout Court inicn'ention'’ 


TOr 



74 


1 COMC'LrSION 

I he ultimate sokiiimi may rest m a piinaiHgin GbaBge T.yhkh focuses upon the Dcfenilant 
Homcouneis' abtlro to pi; rather ton the Ptamtift Mortgagee's artificial fuiancia] requireineiis 
fnir exaiiiple if the Defendant Homeoivnets are ablslo pay ,42,000 per mtmtli, having aprcsmt 
(it-iiBilinnof hi. 500 per month, a Joan modtfiGation fora period of two \ear.« or longer, at SO.'iilo 
pel inoiitb- wcuid avoid the Piaintift Mortgagee's costeof foreclosure and property triainienance. 
avoid tile potential loss of principal arisinaout ofa forced sale in a depressed iiiarket, and allow 
the lie.fi-ndttal Hiimsowiiers to remain in iheir hornev: ilhisapproac.h could ultitnateiy reduce the- 
costs to lenders and borrowers, stabilizetheieal estate market, and proniote equitable 
predictfibihE}'. 


dMrACHMENTS 


>V' lwii£' fafi Seefirifies Transaction Reverse Bngineerecl Ver.sion'Hi l: 

' 8 : ■ ■ 

' 6 : t^wStarop-w'-v-. ... 


Hi 






76 


SHORT FORM ORIIER 

SUPREME court-state OF NEW YORK 

Presi'in: 

HON. F. DANA WTNSTOW, 

Justice 

TWA1.,1AS, 1'Afii ') 

\Vr 1,LS t AftCO BANK, N A. l OK TUEBENEtTT NASSAl COUNiA 

OF THE CERTIFiCATEHOLDERS ASSET 

BAU lAEU SEC i)Ki TIES CORi’OfiA ITON HOME INDEX NO.: 

F.Qi ! [ A LO.AN TRUST, SF.HiFS WMC 2005 HE5 

ASS f I !S M KEO PASS 1 HROLiUH MOTION D Al t: 6/i/O'’ 

r ERTirrCATFS, SERIES, WMC 3()05-HE5 

C 'O C uiiijti^wWe Home Loaas, inc. MOTION SiiiJ NO.: (Htl 

400 Cfiimtrj’Ass’ide Way 
Sinii A'ailcy, CA 93065 

PiaintilT, 

-against- 

JONATHAN MORI. HOME CASH, INC., 

AMERiCA.N BCSfNF.SS MORTGAGE SERVICES, 

INC., CHRY.SLEH FINANCIAL COMPANY. LLC. 

COUNTRYWIDE financial CORP,. DEBRA 
ANN COLLINS, MICHAEL JENIS, MORTGAGE 
ELECTRONIC REGISl RATION SYSTEMS, INC. 

AS NOMINEE FOR WMC MORTGAGE CORP., 

NASSAL CCLNTV OFFICE OF HOUSING AND 
imTRGOVERNMFNT AL AGENCY. NEW 
YORK STATE UEPAR3 MEM OF TAXATION 
AND FINANCE. ITOPLL OF THE STATE OF 
NEW YORK, i OWN OF OYSTER BAY 
iirP ARTMF.NT OF ! V! FRt .OVKRNMENTAL 
AliENf V. INiTED STATES OF AMERICA 
ACTiNG THROl.GH I'Hl IRS. WANTACH 
UEMALARTSPC. 

■KiHN i)OE (Said name being riccitioua, it licing 
‘he iiiteiiliiui uf Plaintiff to desigiiiitenny aitcl all 
titrunari.ty of Hrcmises being foreclosed herein, and 
any parties. Cfirporations or entities, if any, liaving 
or ciairnini;.' itn interest or lien upon the inoiigaged 
premises,). 

Defendants. 


ATTACHMENT “B» 



77 


and it is further 

( )RDFRr.D, that plaintiff shall include in the docutTicniaticiii 
|)ix)\ hied lo the referee pursuant to RPAP1. §13f!l, the foihiv. iny: { i t :in 
MecouriUnu ofall credits to and charges against the account f>f the suhjeet 
mortgage for a period of five years prior to the commencement ol this 
foroclristire acrion, which may be produced in the form in uhith il is 
maintained in the regular course of business, or a copy ofain accouming 
meeting these requirements that has been provided to the morlgago! 
within the five month period prior to this action; and (2 ) an aflldav ir by 
an officer of the plaintiff attesting to ownership of the subjeci note and 
the mortgage securing the note, which shall establish the chain of title 
from the inception of the loan to date. The report of the referee shall 
iaclude a representation that the plainti ff has complied with this 
requiremem. Reasons for failure to provide the information required, or 
deficiencies or discrepancies in the information provided, must be noted 
in the referee’s report, which shall be served immediately upon the Court 
and all mortgagors, together with the information upon which il is based. 
No Judgment of Foreclosure and Sale shall be aw'arded in the absence of 
the foregoing. 

ORDERE.D, that the , named plaintiff mortgagee in the foreclosure 
proceedings .shall additionally provide, to llic referee, the documentation 
evidencing the "Appointment of the FDIC as conservator or receiver" 
pursuant to 12 LSCA §1821 (c) and the doeurncntalion demonsriating 
tlie transtcr. hx pothecation, assumption of the assets or obi igtii ions, 
assignment or crcaiioo of agency with or for the benefit of the as 
applicable in the instant matter. 


j.S.c. 


ATTACHMENT “C” 


Mr. Conyers. There will be questions as soon as we return from 
our obligation to cast votes on the floor. The Committee will stand 
in recess. Members of both panels are invited to join our staffs in 
the conference rooms, and the Committee will stand in recess. 

[Recess.] 



78 


Mr. Conyers. The Committee will come to order, please. 

The question that I would like to pose to our distinguished panel, 
and I appreciate your forbearance, and I understand your sched- 
ules, is what can he done to reduce the number of foreclosures? I 
am going to start with Judge Winslow. 

Judge Winslow. All right. There are a number of things that can 
be done. One is to assure that the servicer, who I am afraid still 
is ill-defined, falling into various categories, one of being a collec- 
tion agency, another of acting as a plaintiff in a foreclosure pro- 
ceeding — to assure that the note is available, the note is in the con- 
trol of the mortgagee, and that the entire package is complete and 
factually appropriate in order for the commencement of discussions 
to take place. 

Now, once they do, then it must go to the mortgagor. The mort- 
gagor homeowner must then — if there is no contest or protestation 
of the prima facie case established by the plaintiff mortgagee, the 
mortgagor then must come forward and produce whatever response 
it has. 

For instance — and I have never seen it, I had nothing to do with 
the creation of this mortgage. A very good case in point is one that 
I recently decided, and that was a case in which the two home- 
owners, husband and wife, signed the mortgage. Only the husband 
signed the note. I determined without further explanation that that 
was insufficient for the case to proceed on the basis that that did 
not comport with the requirements of New York law. 

In the event that there is no refutation, then the next step must 
be justified negotiations between the mortgagee in foreclosure, 
whoever it is that is commencing that foreclosure action, has the 
authority and has the knowledge, with the mortgagor with counsel, 
if possible. In New York we have established under CPLR 3408(f) 
a process by which there will be an appointment of counsel for a 
poor person. That must be expanded. 

There must be some kind of overseeing of the mortgagor’s rights, 
either through the courts or through counsel, and then there must 
be an ability for that homeowner to communicate with the lender 
or the lender’s counsel. We have seen numerous instances where 
the legal back contains an address in upstate New York, the action 
is commenced in Nassau County, and the only way that anyone, in- 
cluding the court, can get in touch with that person in upstate New 
York, who shall remain nameless for the moment, is by leaving 
messages, which are not ever answered. 

The person who developed the answering service should have a 
coveted place in hell because it creates that barrier that prohibits 
the necessary dialogue between the two, the opportunity to engage 
in something that could lead to a loan modification. And the loan 
modification can occur, and has in my part, three times in the last 
month when there has been a third party stepping forward with 
sufficient funds to address the arrearage and sufficient income to 
address the income needs going forward. 

There is a 6-31 rule that is generally applicable with several 
banks, including Immigrant, which is utilized. And that 6-31 rule 
means 6 percent interest, and there must be coverage of 31 percent 
of the total income that would be used to pay the mortgage on a 
monthly basis. 



79 


So if we incorporate those concepts, ideas and issues, I think we 
have a much better chance to address the real problems of the 
mortgage crisis. Thank you, sir. 

Mr. Conyers. Thank you very much. 

Attorney Williams. 

Ms. Williams. Thank you, Mr. Chairman. 

If I understood your question, it was how to avoid getting into 
the foreclosure process, or how to produce a situation to reduce the 
number of foreclosures. 

I think there are three basic elements to improving what is hap- 
pening right now. First, is making sure that troubled borrowers are 
effectively considered for loan modifications, and that these pro- 
grams servicersuse to identify and to consider modifications for 
troubled borrowers are working. 

Second, as part of that is a continuation of improving the oper- 
ations of the servicers so that they can deal effectively and prompt- 
ly with troubled borrowers to answer the kinds of questions that 
the judge is referring to, ensuring that theydeal effectively with the 
paperwork that is being provided them, and that they are able to 
provide answers to those borrowers in a prompt fashion. 

And thirdly, I think the step that I talked about in my oral state- 
ment, which is trying to eliminate some of the confusion and poten- 
tial mix-ups that may flow from this dual-track process where you 
have a borrower that has been approved to get into a trial modi- 
fication program, but yet the borrower is still getting notices or 
otherwise being treated as part of the foreclosure legal process; to 
suspend that so that the borrower has a clear path to work through 
the modification in accordance with the terms of the mod. 

We have evidence from our mortgage metrics system that when 
the servicers provide affordable, sustainable modifications, with 
payments that the borrowers can afford, it does significantly reduce 
the redefault rates and keep those borrowers out of foreclosure. 

Mr. Conyers. But, Attorney Williams, in the vast number of 
cases, that is not happening, the recommendations that you have 
just elicited. 

Ms. Williams. I think there are areas certainly to be improved 
in connection with all of the three areas that I noted, and the ac- 
tion that the OCC directed with respect to the dual-tracking con- 
cern was something that the Comptroller announced just yester- 
day. It is, unfortunately, a reality, though, that there are going to 
be situations where we have homeowners that cannot afford the 
homes that they are in. There are options available for what has 
been referred to as a graceful way to deal with that as well. 

Mr. Conyers. Mr. DeMarco 

Mr. DeMarco. Mr. Chairman, the most effective thing to reduce 
foreclosures in this country would be jobs, getting folks back to 
work. They don’t have the income, or they have had reduced in- 
come, they are not going to be able to keep up with their mortgage. 
So the first thing and the biggest impact that could be had is to 
get our economy moving again where it needs to be and to be able 
to have enhanced employment opportunities for folks. And there 
are plenty of folks that still have jobs, but they have had reduced 
income as a result of those jobs. That is far and away, in my mind, 
the first. 



80 


The other two are to continue to improve, as we have been work- 
ing hard to do, on two things. One is communication of the oppor- 
tunities that are being made available to troubled homeowners. 
There is actually a great deal of public information out there now, 
it continues to be developed and improved, about what to do if you 
are having trouble with your mortgage and that there are alter- 
natives to foreclosure out there. 

I think continuing to make that clear to our citizens who are 
having trouble with their mortgage would be helpful. That is a re- 
sponsibility we all share. Regulators share it. Members of Congress 
share it, banks and mortgage servicers share it, financial coun- 
selors share it. There are opportunities here, and we just need to 
continue to make that clear and to improve our communication. 

And the third is I do believe that there are some large mortgage 
servicers that have been very resource-strapped by this unprece- 
dented volume of troubled mortgages, and these institutions need 
to continue to invest more of their resources, their capital, into edu- 
cating, training and monitoring their employees and bringing in 
additional employees who are needed to implement the various pro- 
grams that have been put in place over the last 2 years to give a 
wider range of opportunities to people with troubled mortgages. 

Mr. Conyers. Ms. Campbell — or Caldwell, excuse me. 

Ms. Caldwell. Thank you. 

Again, this may echo some of the statements by my fellow panel 
members, but I think, you know, first and foremost we have to ex- 
pect servicers to follow the laws in the States in which they do 
business and to adhere to the contracts with the investors for 
whom they service. And the investors, including whether it is in- 
vestor guidelines from Fannie Mae and Freddie Mac for the Fed- 
eral housing agency, or even those that participate in HAMP, all 
have protocols in place to consider modifications before foreclosure, 
and we need to hold them accountable for that. 

The second is increased capacity across the servicing industry. 
Even though, you know, there has certainly been a tremendous ad- 
dition of resources to modifications, loss mitigations, still at this 
point there needs to be more resources against this crisis. It is still 
huge in scale. 

Third, continued support for counseling and — because one of the 
things that we do know is that people do not go through a mort- 
gage process enough times in their life to ever get good at it. And 
when you add to the stress of not being able to pay, we continue 
to support, and educate, and train counselors as part of our out- 
reach. 

And then finally, some standard set of guidelines and protocols 
for servicing practices. And one of things that we have worked 
very, very hard in the HAMP program and will acknowledge has 
taken a long time to do is set up a system to try and align incen- 
tives among groups of people that only had aligned incentives when 
properties were rising forever. And as they started to decline, 
where those incentives have not been aligned, it becomes very ap- 
parent to us all. And we work very hard in the HAMP program to 
try to align those incentives, and when we have done it right, for 
those homeowners in permanent modifications, they have seen 
their payments reduced by, you know, 36 percent, $500 a month on 



81 


average. The redefault rates are lower than for historical modifica- 
tions, and the payments are affordable and sustainable and pre- 
dictable for the homeowner. So while it hasn’t been the volumes 
that we would have liked to have seen, for those who it has helped, 
it has been an effective use of taxpayer funds and a change in serv- 
icing practices. 

So those would be my recommendations. 

Mr. Conyers. Ms. Caldwell, in many, if not most, of the in- 
stances that you recommended, we are not up to speed on them, 
and I don’t see how they are going to ever be utilized and brought 
into fruition. 

Ms. Caldwell. You know, again, this has taken a very long 
time, it has been a very difficult process to implement. And I think 
you have heard across this panel that there still needs to be more 
attention to this matter, but I thought it might be helpful just to 
share some statistics from our call center complaints. 

In October 2009, 18 percent of the complaints were they have 
submitted documents and had not gotten a response from their 
servicers. In October 2010, it is 5 percent. Now, 5 percent is still 
unacceptably high for losing documents or not responding to home- 
owners, but it does show the effect of resource investments. 

You know, when we had servicers not participating in HAMP, a 
year ago folks that called in to complain heard 10 percent of the 
time they were not participating in HAMP. It is now down to 2 per- 
cent in 2010. We are seeing year-over-year improvement, but it has 
been a very slow process to increase capacity given the scale and 
the changing nature of this real estate crisis. 

Mr. Conyers. Well, the projections that we have is that there 
will be a total of 13 million foreclosures in the United States of 
America before we come out of this downturn. So I don’t know how 
I can take any great encouragement at the figures that more people 
are using HAMP that call you when the number of foreclosures is 
going up. My question was how do we reduce the extraordinary 
number of foreclosures? 

Ms. Caldwell. You know, I think, as we have heard, we need 
to continue to outreach to homeowners. You have heard from other 
panel members. We still at this point in time have homeowners for 
the first time they are having contact with their servicer is when 
the foreclosure notice is filed. 

And we recently launched a public service campaign to educate 
homeowners that help is available. We have worked with many of 
the nonprofits on stopping fraud and other scammers that go after 
homeowners, but it is very, very difficult. And one of the reasons 
why this program runs through 2012 is we are not out of the crisis. 
We still have a lot of work to do. 

Mr. Conyers. Well, does anyone here dispute the economic pre- 
diction that there will be 13 million foreclosures before we see any 
change? 

Judge Winslow. Yes, I disagree with it. I think it is going to be 
far more. Nassau County alone has now 40,000 foreclosures that 
have either been commenced or are in danger of being commenced. 

Mr. Conyers. How many? 

Judge Winslow. 3.12 percent actually commenced and another 7 
percent in which the homeowner, borrower, is 90 days or more in 



82 


arrears. It is increasing; it is not decreasing, and it cannot change 
unless the paradigm changes. Unless we see what it is that the 
homeowner can do and, in doing so, allow the equilibrium, which 
is now a disequilibrium, to return to the real estate market because 
of surety regarding home sales, we will not effect any substantial 
change in this process. It will only get worse from this person’s per- 
spective. 

Mr. DeMarco. Mr. Chairman, I am not familiar with the par- 
ticular study you are referring to. If you would like to have your 
staff provide it, I will be happy to have my team take a look and 
assess what are the underlying assumptions in a forecast like that. 

Mr. Conyers. Well, what do you have? What is your forecast? 

Mr. DeMarco. I don’t have a forecast, Mr. Chairman, but I can 
give you a couple of numbers. Fannie Mae and Freddie Mac cur- 
rently own or guarantee about 30 million mortgages. That is out 
of about 55 million mortgages in this country. So for the first 8 
months of this year, which, you know, one would expect this year 
to be, you know, one of the high points in terms of such action, the 
completed foreclosures on Fannie Mae and Freddie Mac loans 
through the first 8 months was a little less than 300,000. And I 
would add that for the 300,000 foreclosures, there were more than 
double that number completed foreclosure-prevention actions. 

So while there may be a great deal of filing of foreclosure, initi- 
ation of foreclosure processes, we are all still working very hard on 
these alternatives to foreclosure. And at least I can only speak to 
the enterprise book of business that I am responsible for, but we 
are working diligently through these various foreclosure alter- 
natives, whether that means a loan modification, a repayment 
plan, or a short sale or deed in lieu of foreclosure. And our rate 
through the first 8 months of 2010, as I said, Mr. Chairman, a lit- 
tle less than 300,000 completed foreclosures and more than double 
that number of foreclosure alternatives having been finalized. So 
the modification, the modification is not a trial mod, it is a com- 
pleted permanent mod. 

Mr. Conyers. Are you telling me, Mr. DeMarco, that you have 
never heard of this prediction or projection of 13 million fore- 
closures before today? 

Mr. DeMarco. Mr. Chairman, I am not familiar with what the 
assumptions are behind that, so I am not confident of what is in 
this projection, and I would be happy to take a closer look at it. 

Mr. Conyers. All right. You have never heard of it before, or you 
don’t know what — well, let me just get this straight. You have 
never heard of it before, or you have heard of it and you are not 
sure of its validity? Which? 

Mr. DeMarco. Mr. Chairman, I can’t recall whether I have 
heard that particular prediction or not. 

Mr. Conyers. You can’t. 

Mr. DeMarco. I cannot, I am sorry, sir. 

Mr. Conyers. Well, I am, too. But we are all sorry. But, you 
know, you have got a pretty big role in this, and to have never 
heard of this figure before. Now, maybe my staff pulled it up out 
of thin air, or maybe they have misunderstood it and I am not re- 
porting it to you accurately. It would seem to me 

Mr. DeMarco. If 



83 


Mr. Conyers. Wait a minute. It would seem to me that you 
would have some projection of your own if you don’t accept or have 
never heard of this one. 

Mr. DeMarco. With respect to doing projections, Mr. Chairman, 
as a conservator and regulator of Fannie Mae and Freddie Mac, 
that is the focus of my agency. And we have recently published on 
our Web site a series of loss projections with regard to future draws 
from the Treasury Department due to losses by Fannie Mae and 
Freddie Mac. And so we have made available that report on our 
Web site that takes various possible house price paths. We applied 
a stress-test-like scenario modeled after what the bank regulators 
did last year, and that information — I would be happy to provide 
copies of that report to the Committee. 

Mr. Conyers. Well, would it help you, or will it have helped you, 
that you came before us today and you found out about the projec- 
tion of 13 million foreclosures? Would that be of any assistance to 
your responsibility in the Federal Government? 

Mr. DeMarco. Mr. Chairman, I view my responsibility is to min- 
imize — 

Mr. Conyers. Just answer the question. Would it or wouldn’t it? 

Mr. DeMarco. No, Mr. Chairman, it wouldn’t. 

Mr. Conyers. It would not. 

Mr. DeMarco. Because I would not care whether the number 
was 13 million or 5 million or 20 million. I am working like the 
dickens to minimize 

Mr. Conyers. Did you say that it would not affect you? 

Mr. DeMarco. Mr. Chairman, we are working to minimize that 
number. 

Mr. Conyers. I just wanted to get your response, sir. 

Mr. DeMarco. Yes, sir. 

Mr. Conyers. Did you say it would not? 

Mr. DeMarco. No, I am misunderstood. It would be helpful to 
know what that projection was and see if there is information in 
that projection that could inform our decisionmaking. That is why 
I would be happy to have that from your staff, sir, so I could review 
the number and the basis behind it. 

Mr. Conyers. All right. 

Mr. DeMarco. If there is information in that sort of projection 
that could be helpful to inform our work, I would be most happy 
to have that. 

Mr. Conyers. Thank you. We will be happy to provide you with 
the background for that statistic. 

And I want to thank Mr. Goodlatte, Bob Goodlatte, for his for- 
bearance here, because the only thing that I would like to raise 
now is the fact that no one on this panel has raised the question 
either for or against the temporary moratorium on foreclosures, 
which is probably the most obvious remedy that anybody in North 
America could come up with, especially in view of the fact that it 
has been employed during the era of Franklin Delano Roosevelt at 
not only the national level, but at the State levels as well, and that 
there are Governors who have resorted to this request at the State 
level. And I am now about to dismiss all of you afterward, and 
there hasn’t been one solitary word mentioned about this procedure 
established in the 1930’s. 



84 


Judge Winslow. Then let me, if I may, sir. The answer is that 
a deferral or a moratorium may he appropriate if during that time 
there is an honest, justified attempt at working out the resolution 
that is only being forestalled. 

I would agree with a moratorium, hut I don’t believe that we are 
going to see a sudden rise in house values, home values, that is 
going to make a radical change in the way we approach the real 
estate market and the foreclosure market, and that has to happen 
over time. If we have — make it twofold for the moratorium, I would 
think that that would be a very appropriate consideration. Thank 
you, sir. 

Mr. DeMarco. Mr. Chairman, if I may, you are correct. I did not 
raise this issue in my oral remarks, but I do deal with it directly 
in my written statement submitted to the Committee. And I sub- 
mitted my view that I am not in favor of a nationwide moratorium 
on foreclosures. I do not believe that that is either appropriate or 
necessary at this point in time. And I believe that the cost of such 
a moratorium would outweigh the potential benefits, and I go 
through that in my written statement, Mr. Chairman. 

Mr. Conyers. Well, do you still leave the door open slightly, Mr. 
DeMarco, for the possibility that temporary State foreclosure mora- 
toriums could be, under circumstances, appropriate? 

Mr. DeMarco. I wouldn’t rule it out, Mr. Chairman, but I am 
not aware of circumstances at this moment in which I would say 
that that is appropriate. 

I would say that where we have servicers that have identified 
problems in foreclosure processing that calls into question the va- 
lidity of paperwork being submitted to courts or being submitted to 
State officials to effect a foreclosure, in those cases where there 
was an identified problem with the servicer, absolutely it would be 
dishonorable and it would be illegal to be submitting such docu- 
ments when there was a known problem. I think in that case for 
the individual servicer where there is a problem identified, that is 
how we ought to be targeting stoppages of foreclosure actions until 
we are sure that the law is being properly followed. 

Mr. Conyers. Attorney Williams, I notice you nodding your head. 

Ms. Williams. I think we agree completely with the point that 
Mr. DeMarco just made, where there have been identified flaws 
and deficiencies in the foreclosure process or in the documentation. 
If there are questions about the accuracy of the information that 
is being relied on in connection with the foreclosure, those need to 
be fixed before foreclosure resume. 

Ms. Caldwell. I would just say the same for those servicers in 
those cases where their processes have showed they are not suffi- 
cient to follow the laws, they need to stop the foreclosures, fix the 
problems, and we supported those moratoriums. 

I would also say within the Making Home Affordable program, 
servicers are not permitted to file foreclosure until they have tried 
to solicit homeowners that are 60 days delinquent, and we set 
standards by how many times they have to attempt by mail and 
by phone before they can file foreclosure. 

But in terms of a national moratorium, we have a lot of concerns 
on neighborhoods and other things that can help folks that are 
waiting to buy a house out of foreclosure. 



85 


Mr. Conyers. Ranking Member Bob Goodlatte of Virginia. 

Mr. Goodlatte. Thank you, Mr. Chairman. 

Ms. Caldwell, when did the Treasury Department first learn of 
the foreclosure document problems? 

Ms. Caldwell. Can you be more specific? 

Mr. Goodlatte. Well, you know, we have got this whole thing 
that has burst on the scene here in the last few months about prob- 
lems with foreclosure documents not being properly processed, not 
being properly signed and so on. You are familiar with that, right? 

Ms. Caldwell. Correct. 

Mr. Goodlatte. When did the Department — when did the Treas- 
ury Department first become aware of that? 

Ms. Caldwell. Again, I don’t want to speak for everyone in the 
Treasury Department, but certainly within our office we became fa- 
miliar with at the time that the first major servicer. Ally, an- 
nounced its foreclosure moratorium due to that documentation 
problem. 

Mr. Goodlatte. So was it from press accounts, in other words, 
that you first learned of this problem? 

Ms. Caldwell. From my office, yes. 

Mr. Goodlatte. With all the work that Treasury has done with 
loan modifications, and working with lenders and servicers through 
the Housing Affordable Modification Program, did the Treasury De- 
partment have any indication that there were such widespread doc- 
umentation problems with foreclosures? Obviously some of the peo- 
ple coming in for the modification process must have reached a 
foreclosure stage of their circumstances. 

Ms. Caldwell. You know, I think it is important to keep in 
mind that the Making Home Affordable Program is focused on fore- 
closure prevention, doing everything to keep that homeowner from 
getting to foreclosure. Certainly as it relates to documentation 
problems, we saw many of them. And we have had servicers go 
back, we solicit homeowners, we track them on collecting docu- 
mentation, and in January of 2010, we instituted a temporary re- 
view period where we asked all servicers to go back and make sure 
they notified homeowners as to the status of their documentation 
or their payment and gave them a chance to appeal. 

So we certainly saw documentation and capacity problems within 
modification, and we took steps to change behavior and correct 
that, but, again, HAMP is focused on foreclosure prevention, not 
the technical and State specifics on foreclosure. 

Mr. Goodlatte. Let me ask Ms. Williams, when did the OCC be- 
come aware of the foreclosure documentation problem? 

Ms. Williams. At the same time that Ms. Caldwell has men- 
tioned. 

Mr. Goodlatte. And was it from press reports? 

Ms. Williams. It was from press reports in connection with the 
Ally matter. 

Mr. Goodlatte. And can you explain how the OCC, which regu- 
lates the large banks that are at the center of this controversy, 
failed to detect that there were foreclosure documentation issues 
well before this turned into a crisis that we find has gummed up 
the entire works here and caused problems for families, problems 



86 


for people who want to buy homes, and has really altered the en- 
tire real estate market of the country? 

Ms. Williams. We were focusing our supervisory resources very 
intensively on the modification process, and directing the national 
bank servicers to make various improvements in their operations 
and in the structure of the modifications that they were offering. 
So our focus was on that aspect of their mortgage servicing oper- 
ation. We were relying on internal audit and internal quality con- 
trol procedures that these institutions had over what we regarded 
as sort of general business processes, how documents are signed, 
how documents are notarized. 

The OCC, and I think bank regulatory agencies in general, in 
terms of what our examiners do, when you are 

talking about the general business processes of a bank, we rely 
to a large extent on the quality control and the audit by the insti- 
tution to get those processes right. And we also look for warning 
signs, for example, consumer complaints from the OCC’s Consumer 
Assistance Group. There were no warning signs from internal 
audit, quality control, or even complaints relating to the foreclosure 
documentation aspect of mortgage servicing triggering red lights 
for us. 

In hindsight, as we think about the volume of transactions that 
were going through the process, we could have been more sus- 
picious that the challenges that the servicers were encountering on 
the modification stages — which they had issues and they continue 
to have issues — that there may have been similar types of problems 
in handling the volume that were cropping up in the foreclosure 
stage. But that then raises a question. Does that mean that in 
order to oversee, you have to literally station bank examiners in 
the rooms where people are signing documents, to see if there is 
a notary sitting next to them? 

I think there are some very legitimate questions about how to ef- 
fectively supervise this type of activity going forward. And one 
thing that I would note is the examinations that we have under- 
way. We call them horizontal exams — across multiple banks and 
with the involvement of the other bank regulators and also the 
FHFA in certain respects, will produce not just findings particular 
to the individual banks to convey to those banks, but the regulators 
plan to do a public report of the basic problems that we find, sort 
of a lessons learned. 

And I think that lessons learned can translate into two things 
that are very relevant to your question. One is there has been dis- 
cussion about the development of standards for mortgage servicers 
so that there is a set of more uniform standards and expectations. 

Mr. Goodlatte. Is that something the Federal Government 
should do or the State Government should do that? 

Ms. Williams. Well, the Federal bank regulators certainly have 
the ability to do that, to set more precise standards across the de- 
pository institutions that we regulate. We also need to use our find- 
ings, as a lessons learned on our supervisory processes to illuminate 
ways in which we can more effectively supervise. And the idea of 
developing new standards and looking at supervisory techniques I 
think go hand in hand. 



87 


Mr. Goodlatte. Thank you. Mr. DeMarco, has the roho-signing 
scandal exposed the American taxpayers to any potential legal li- 
ability because of the Federal conservatorship of Freddie Mac and 
Fannie Mae? 

Mr. DeMarco. Congressman, I am unaware of legal liability it 
would pose. It does pose a risk of additional losses to those tax- 
payers, which troubles me. But those losses would arise principally 
from additional delays in the actual processing of a foreclosure so 
that the loss on that particular property goes up. The longer the 
foreclosure takes, the more the American taxpayer is paying for 
that mortgage to be carried by Fannie Mae and Freddie Mac and 
the greater risk that the property value continues to decline. And 
those two things, sir, increase the loss to the taxpayer. 

Mr. Goodlatte. What steps are Freddie Mac and Fannie Mae 
taking to ensure that foreclosure documentation scandals like this 
don’t reoccur in the future? 

Mr. DeMarco. Several things. With the major servicers, they are 
literally on site to look at how their mortgages are being serviced. 
We have been sending out a great deal of reminders and commu- 
nications to servicers about their contractual responsibility. And I 
will speak for FHFA and say that we are certainly, you know, 
working in coordination with Federal banking regulators and 
awaiting their examination activity that Julie Williams spoke of a 
moment ago. 

Mr. Goodlatte. Thank you. Justice Winslow, you are a State 
court judge and your testimony has detailed alleged abuses by 
servicers participating in State court foreclosure proceedings. Is 
your appeal to Congress for help today a suggestion that the New 
York State courts and Rules of Civil Procedure are not equipped to 
deal effectively with lawyers and parties who mislead the court? 

Judge Winslow. It is addressed to both. I think that it can be 
a Federal matter as well as a State matter. Insofar as sanctions 
are concerned, insofar as consideration of the action taken against 
a particular mortgagee, that does lie within the purview of the 
State legislature and the State court judges. However, HAMP and 
HAFA have the ability to address certain minimum requirements. 
This is a due process issue in many respects, which can be ad- 
dressed by Congress to assure that each party is fairly treated, 
that the protections are afforded. 

Mr. Goodlatte. I agree with you that we can do that. But let 
me ask you as a follow-up. 

Judge Winslow. Certainly, please. 

Mr. Goodlatte. The attorneys general of all 50 States and the 
District of Columbia are investigating the foreclosure documenta- 
tion scandal. Given that foreclosure is a State law issue, do you 
have any reason to believe that the State attorneys general are not 
in the best position to resolve the issue, at least initially? 

Judge Winslow. I have no reason to believe otherwise. I think 
that they are capable of addressing the particular issues that they 
have. But that doesn’t mean solution of the problem. It means an 
examination, a reaction, rather than a proactive approach which 
can come on the Federal level. 

Mr. Goodlatte. It can come on the Federal level, but each State 
concerned about both people who may be wrongly subjected to fore- 



88 


closure and to the fact that the delay in the foreclosure, as Mr. 
DeMarco has pointed out, has serious ramification beyond the indi- 
viduals in that individual transaction; they also have the ability to 
make sure that they step in and see that attorneys and others who 
are responsible for following the law are indeed following the law. 

Judge Winslow. His comment is a very interesting one, because 
at this point I think it is well recognized that the mortgagee, the 
homeowner, who has had a foreclosure, and after sale there is a de- 
ficiency, is unable to pay it. So the mortgagee is the party that is 
most likely injured. That then creates the environment or the at- 
mosphere in which Federal regulation can set certain minimum 
standards, as they have in HAMP and HAFA. So I see very little 
enforcement through the Federal Government standards now be- 
cause they are not compulsory, they are not mandatory, they allow 
for the individual mortgagee to select. 

Mr. Goodlatte. One last question. What interest has the State 
bar association in ensuring that the attorneys who conduct it regu- 
lates — I am sorry, the bar association regulates the conduct of 
these attorneys, correct? 

Judge Winslow. In a grievance fashion, absolutely, yes. 

Mr. Goodlatte. Well, have there been in New York, to your 
knowledge, any ethics proceedings brought with regard to attorneys 
handling foreclosure cases? 

Judge Winslow. As of this moment, not to my knowledge. 

Mr. Goodlatte. Is that the bar association’s failure to be paying 
attention to what is going on here as well? 

Judge Winslow. In many respects. But in deference to the New 
York State bar association, they are not acting within clearly de- 
fined rules. They are using the rules that they are developing 
themselves through a Committee process. 

Mr. Goodlatte. I mean, rules of ethical procedure regarding im- 
proper signatures to documents don’t exist right now under the 
canons of ethics or the bar association in the State of New York? 

Judge Winslow. They clearly do. But the rules that would be ap- 
plied have come to light in the context of the violations only within 
the last year. The association between the lender and the lender’s 
attorney is not something that was considered in 2005 when vir- 
tually every single foreclosure, no matter how improper the sub- 
mission was, ended up in a resolution because of the increasing 
value of real estate in the real estate market. 

Mr. Goodlatte. Well, you know, I understand 

Judge Winslow. Does that answer or not answer your question? 

Mr. Goodlatte. I understand the desire on the part of many to 
have somebody wave a magic wand or come up with a silver bullet 
that will both cure all of the pending foreclosures that exist right 
now and prevent this kind of thing from happening in the future. 
I would argue that the silver bullet is to have people pay the pen- 
alty for not following the law as it exists right now. And I think 
you would see people clean up their act really quickly if that took 
place. 

Judge Winslow. And just one very fast statistic. In the appellate 
division first department alone, there are over 3,500 grievances 
that have to be processed. Yes, there is underway a bar association 
committee investigation and approach to addressing your problem 



89 


as you articulated it. It hasn’t happened yet, it is on the horizon. 
And I don’t think 

Mr. Goodlatte. Do you think the sooner everybody who is af- 
fected by it got about doing what they need to do, and if they are 
charged by the law or the canons of ethics or by the contractual 
obligations that they have got about doing it, the sooner we would 
clean this up and the sooner we wouldn’t see repetition of it. And 
the longer we wait for Congress or somebody else on high to say 
that we have some magic solution, whether it is 13 million or 
300,000 or whatever the number is, it is a good number, but to 
think that we can set up some new regime that is going to take 
care of this problem I think is a mistake. We need to get about the 
business of taking each one of these mortgages and doing them cor- 
rectly. 

And to the extent that Ms. Caldwell’s Department can help peo- 
ple avoid foreclosure with a refinance intervention on their part, 
great, I am all for it. But it seems to me we are wasting a lot of 
time here saying we are not going to do anything because we have 
got so many of them, that we are just going to have a moratorium 
or a freeze or some other thing that delays justice occurring. 

Judge Winslow. Yes, sir. And you heard what I said about a 
moratorium or a freeze. 

The other aspect of this is the extent to which the lender partici- 
pated in the lending process with the borrower. If in fact there is 
a conjunction of lender-borrower activity such that the lender di- 
rectly or indirectly requested the borrower to place greater income 
on the financial statement is participation. Insofar as what the 
New York State Bar Association can do, they can do something, but 
it must be the grievance committee that is ultimately responsible 
for taking action against someone for suspension and a revocation 
of licensor. 

Mr. Goodlatte. Thank you. I want to thank all the members of 
the panel. It has been very helpful. Mr. Chairman, thank you very 
much. 

Mr. Conyers. Thank you very much, Mr. Goodlatte. 

Mr. Goodlatte. I appreciate your forbearance as well. 

Mr. Conyers. Well, I appreciate your steadfastness on this issue. 
I am now pleased to recognize the distinguished gentlelady from 
Los Angeles, California, Maxine Waters, a senior Member of the 
Committee. 

Ms. Waters. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to continue the work that I have been involved 
with on the Financial Services Committee relative to these fore- 
closures and loan modifications. And I am familiar with some of 
the witnesses that are here today, had an opportunity to spend 
some time raising some questions, and if I may I want to start 
again with Ms. Caldwell, who is the Chief of Homeownership Pres- 
ervation Office, Department of Treasury. 

We heard from the Congressional Budget Office this week that 
when all is said and done, the Treasurer will only spend $12 billion 
of the $50 billion originally targeted under TARP for homeowner 
assistance. Moreover, of the $12 billion only $4 billion is for HAMP 
and sent to payments for services to modify loans. That is 8 percent 
of the total allocated to the program. 



90 


At my hearing on November 18th, Governor Elizabeth Duke said 
we could expect more than 6 million more foreclosures through 
2012. I guess my question today, Ms. Caldwell, is $4 billion enough 
to deal with the scale of this problem? 

Ms. Caldwell. Congresswoman, I am not familiar with all of the 
assumptions behind the Congressional Budget Office analysis. But 
what I do know is that as we sit here today, we continue to have 
$45.6 billion allocated to the housing programs that include close 
to $30 billion for HAMP, plus the hardest hit — $7.6 billion for the 
hardest hit funds that support the State housing finance agencies, 
including in California, as well as the program we recently an- 
nounced through the FHA. 

And what we — and I think it is important to remember that 
these programs run through 2012, and we continue, we continue to 
focus on outreach, because we don’t think the crisis is behind us, 
and we think there is more work to do on mortgage modifications, 
and we are committed to doing that. 

Ms. Waters. Ms. Caldwell, if I may, I am concerned that with 
so much money left unspent — and you are describing that the pro- 
gram is scheduled to go through 2012 — that we are on track to 
have $38 billion in HAMP funds remaining. Can the Treasury De- 
partment do anything to change HAMP so that this $38 billion 
does not go unspent? 

Ms. Caldwell. Again, Congresswoman, that is something that 
we look at every day within the context of the programs that we 
have. I think it is important to remember that the funding is paid 
out over a period of 5 years as mortgages remain successful. As the 
crisis is changed, we moved to the hardest hit funds to get money 
out to the States. So we remain committed to helping as many 
homeowners avoid foreclosure as possible. 

Ms. Waters. Well, I am being advised that the CBO report takes 
all of that into account. And it looks as if the money is not going 
to be spent, can’t be spent. 

Let me just get at why I think probably the moneys are not being 
spent as they could be spent. What percentage of borrowers are 
dropped from HAMP trial modifications simply because they didn’t 
submit the requisite paperwork, even when they made all of their 
trial payments. I know this will be different for every servicer, so 
you don’t have to disaggregate the information, just give me an av- 
erage of what percentage of these borrowers are being dropped be- 
cause of paperwork problems. 

Ms. Caldwell. In terms of trial modifications, again, it is hard 
to be very specific because there are some cases where their docu- 
mentation — there are some cases where they didn’t submit docu- 
mentation and didn’t make payment. But I would say approxi- 
mately in that population that went into a trial based on their stat- 
ed income, about 30 percent had a documentation issue. 

Ms. Waters. Well, the ones that I am referring to are the ones 
that made all of their trial payments and they wish to keep going, 
but they have not completed the paperwork. And a lot of times we 
are hearing that paperwork is lost, all kinds of problems with pa- 
perwork. So why are they dropped, why would they be dropped if 
they are up to date on their trial payments? 



91 


Ms. Caldwell. Again, you know, we have heard from your office 
and we have worked closely with a number of offices on resolving 
the paperwork. In January, as you know, we said the servicers 
could not decline anyone for lack of paperwork. They had to go 
back, they had to send a letter to that homeowner saying what pa- 
perwork was missing and give that homeowner a chance to resub- 
mit it again. If they are declined for paperwork again, they have 
a 30-day appeal. And so while there continues to be an unaccept- 
able level of lost paperwork, we have continued to keep people in 
trials for an extraordinarily long time to get the paperwork done. 

Ms. Waters. Well, we believe that those persons who are in com- 
pliance, who have made all of their payments, should not be 
dropped because of paperwork problems. We don’t know whether or 
not this problem is caused by the bank’s failure to process paper- 
work, we don’t know what is happening. But we believe that if 
these clients are keeping up with their payments that you should 
continue to keep them into the HAMP program in some way so 
that they can stay in their homes rather than facing foreclosure. 

Now, having said that, you mentioned the Keep Your Home pro- 
gram. Other than Bank of America, the major servicers are not 
participating in California’s 790 million principal reduction compo- 
nent of the Keep Your Home program which uses money from the 
hardest hit fund. Now, Treasury oversees this California program. 
Why can’t you get more banks to participate than just one? 

Ms. Caldwell. So let me just — I would like to address one more 
thing on the document issue, because you have 
raised a very important concern, and I just want to make sure 
your office knows that if anyone has been declined from HAMP and 
has a reason code, they have been told that they did not submit 
their paperwork and they can produce and appeal it, we force the 
servicer to look at it. In some cases if they have decided that the 
paperwork doesn’t work or they can’t produce it, the servicer must 
consider them for an alternative modification. So I just want to 

make sure your office and others know that we take it 

Ms. Waters. Well, do all of the HUD counselors know this, all 
of those persons who are involved with assisting with loan modi- 
fications? Have you sent out any memorandum or notice to them 
that would explain this to them? Because they call us, and we are 
getting from the counselors in the HUD program that people are 
being dropped who are up to date on their payments in HAMP. So 
evidently they don’t know. Has there been any communication with 
them? 

Ms. Caldwell. You know, on November 3rd we actually issued 
guidance to servicers on handling the homeowner complaints and 
making sure that inquiries were independently reviewed and that 
servicers had to suspend any foreclosure sale until it has been re- 
solved. Because again, the capacity issue has been something that 
we want to make sure gets addressed. 

But again, I would like to answer your question on the hardest 
hit fund, and just say that in September we called in all of the 
large servicers and representatives from all of the 18 housing fi- 
nance agencies, along with representatives of Fannie Mae, Freddie 
Mac and FHFA, and talked to them about the importance of this 



92 


program and putting together a model to get the servicers to work 
with all of the State FHFAs in this program. 

Ms. Waters. I am reminded that at our Subcommittee hearing, 
the banks basically admitted to dropping participants because of 
paperwork problems. So I don’t know what you can do to be more 
forceful in getting their cooperation or what you can do to commu- 
nicate better to the counselors how to follow up when they get 
these complaints. But the fact of the matter is, I suppose all of this 
is voluntary; is that right? 

Ms. Caldwell. Participation is voluntary, but once a servicer 
signs up, that servicer has to comply with the requirements of that 
contract, and we expect them to do so. 

Ms. Waters. But they don’t have to sign up? 

Ms. Caldwell. Correct. Servicers do not have to participate. And 
in fact as of October 3rd, any servicer that is not in the program 
is not able to sign. So we have signed up the servicers that we have 
in there now. 

Ms. Waters. Okay. And I want to get back to something that — 
questions that I have started, without badgering you, I don’t want 
to badger you. But I do want to know this. Since HAMP is not 
working — and I think there is a consensus that it really is not 
working — it is a voluntary program, and since there have been no 
sanctions, no fines, no real enforcement, I want to know what is 
Treasury’s program to redo all of this, to reconstruct it, to come 
back with something that is really going to deal with these fore- 
closures and loan modifications? What are you offering that is dif- 
ferent? 

Ms. Caldwell. Congresswoman, first let me just say it is not 
badgering. I really do appreciate the leadership you have provided 
on behalf of homeowners, not only in your State, but throughout 
the country. But while I will agree with you that HAMP has not 
helped as many people as we would have liked to have seen helped 
at this time last year, it has helped; it had tremendous growth 
when we started the year with 31,000 to 500,000. We need to focus 
and do more, and so I will agree with you on that. 

But I think it is very important, we can’t lose sight of the fact 
that those modifications done within HAMP are affordable and 
they are sustainable and they have changed the way the servicing 
industry has done business. So I just want to make sure that we 
follow that. 

In terms of the programs, I also want to just remind you that it 
is contractual, it is voluntary, but that is the way the program was 
set up. And as part of the TARP legislation, those programs that 
we have in place are the programs that we have. And we continue 
to try to work and revise those programs to the extent we can with- 
in the legislation that we have based on feedback from home- 
owners, from investors, and from servicers to make sure it is per- 
forming better. 

Ms. Waters. I appreciate what you are 

Saying, Ms. Caldwell, but I would like to know, given you have 
all the money that you need to deal with these problems in the 
HAMP program in the hardest hit fund, the Keep Your Home pro- 
gram, how would you suggest that that money be used to speed up 
loan modifications and to facilitate loan modifications and do prin- 



93 


cipal write-down? Do you have any — I mean, I know that you are 
saying that you have seen some progress. And I must he very hon- 
est with you. Those of us who work very closely with this just don’t 
see the progress. We are still bombarded with requests for help for 
these problems, for foreclosure problems in our districts. And we 
really do need to see more aggressive action. The more we hammer 
away at how to do it, we uncover more and more problems that the 
regulatory agencies should be uncovering, should be on top of, 
should know about. And it is just blowing my mind that we have 
all of these problems with the robo-signing and not having the 
notes, et cetera. So I mean it is not that we can be comfortable that 
things are getting better. How could you use this money to make 
it better? 

Ms. Caldwell. Again, while the programs that we have an- 
nounced continue to be early, I just want to make sure on the 
record that we have made so many changes to this program in re- 
sponse to what we have heard. In fact, some would say that we 
have made too many changes, that the system can’t absorb them. 
But within the first part of this year we announced the hardest hit 
fund to five States, to have those States that were hardest hit get 
money out the door. We got good response to that, that we in- 
creased it in June to add an additional five States. 

Ms. Waters. What banks are participating? 

Ms. Caldwell. Again, as I mentioned 

Ms. Waters. In California we have one bank that is partici- 
pating, Bank of America. Why can’t you get more to participate? 

Ms. Caldwell. As I mentioned, you know, the programs are just 
continuing to be launched. The large servicers have said they will 
participate. We have called them all in, including the agencies, in 
September and more of them are participating right now in the un- 
employment programs because that has been faster to implement 
in a severe crisis to address, but we remain focused on encouraging 
the use and the consideration of principal reduction as much as 
possible, and we would like to see more servicers engaged in the 
California program. I think it is a good pilot for other FHFAs. 

Ms. Waters. Well, as I see it, whether we talk about the pro- 
gram that we funded for unemployed homeowners or whether we 
talk about the TARP money that you have, we have basically done 
everything possible to support keeping people in their homes. And 
it is a little bit mind-boggling to recognize that you have the 
money, you have the power, we have all of this so-called oversight, 
and we still are looking at 6 million more foreclosures through 
2012. 

I know, Ms. Caldwell, there are some people that would have you 
believe that these are just irresponsible people who tried to game 
the system. But I have said over and over again, I don’t believe 
that millions all of a sudden became bad people. Something hap- 
pened, and we know what it was. The subprime crisis was created 
basically through predatory practices, really; I mean that is what 
it amounts to. And nobody has gone to jail, nobody has been fined, 
nobody has been penalized in any way. And we just feel as if, given 
all of the resources that we have made available to facilitate keep- 
ing people in their homes, that we are just not doing a good job 



94 


of it. You are not doing a good job, our regulatory agencies are not 
weighing in in ways that could help us keep people in their homes. 

And we think that when we find things, like in the HAMP pro- 
gram, where people are up to date on their payments and they 
have kept, you know, good faith with the contract, that they should 
be assisted in staying in their home rather than being dropped be- 
cause the paperwork is not done. Sometimes it takes a long time 
to get the paperwork done. We have people who call us, the elderly, 
for example, who are asked for paperwork and they have no assist- 
ance in trying to put that paperwork together. And we finally get 
them with some counselors and the counselors have to start from 
scratch in helping this 80-year old person who has been in that 
house for 30 or 40 years who got a refi through some slick loan 
initiator, and then we find that this person has been in HAMP, 
they have paid, and they are going to get kicked out of their home. 

So it is very disturbing. And every time we hold these hearings 
and we go over these questions and we bring this to your attention, 
it gets even more frustrating. 

Mr. Chairman, I yield back the balance of my time. 

Mr. Conyers. Thank you very much. I am pleased now to call 
Darrell Issa, recognize him and to thank him for his — he has quite 
a schedule and he has fulfilled his commitment to return back to 
the Committee for questions, and we yield to him at this time. 

Mr. IsSA. Thank you, Mr. Chairman. And nothing could be more 
important than American homeowners’ ability to stay in their home 
if they have the means to do so, and I appreciate your leadership 
on this. 

And for my colleague from California, as you may recall, we have 
asked the special IG for an audit of the program you mentioned 
earlier, and as soon as I get it back I will share it with your office. 
I very much think you have a point, that this is an example where 
we have got to get the numbers to figure out whether in fact it 
needs to be shut down or revamped. 

I will try to be brief, I know we have votes coming up and we 
have a lot of Members still to ask questions. Mr. DeMarco, I am 
going to only ask you one question, and I sort of view it this way. 
In the news, rightfully so, there has been huge indignation that 
loans are being not fully looked at and simply stamped, the so- 
called robo signatures. But isn’t it true that Fannie and Freddie 
admitted that they didn’t look at individual loans, that they relied 
on third-party guarantees of large packs of them when they took 
on trillions of dollars of obligation effectively on behalf of the Amer- 
ican people? 

Mr. DeMarco. Congressman, Fannie Mae and Freddie Mac do 
not service mortgages. They do guarantee mortgages that they ac- 
quire or they securitize. 

Mr. Issa. What I am getting to is they took mortgages without 
looking at them, just as we are initiating HAMP events today, 
based on, if you will, stated income, which is another name for the 
beginning of a liar’s loan if you don’t change along the process, 
right? 

Mr. DeMarco. I see. Fannie Mae and Freddie Mac typically pur- 
chase their loans that have been run through an automated under- 



95 


writing system of theirs so that it passes or doesn’t pass a screen 
that they have developed that defines their underwriting 

Mr. IssA. Well, didn’t their screen fail? Isn’t it true that they 
took crap in? They took in outright lies in which the underwriting 
property was never worth what it was borrowed against and the 
individual never had the income to repay it? Isn’t that true in 
many, many, many, many thousands of cases? 

Mr. DeMarco. Congressman, they have drawn $151 billion from 
the American taxpayer. They clearly bought loans that they either 
did not adequately underwrite or they did not price the risk ade- 
quately. And they certainly did not establish and build up in their 
corporations sufficient capital to back the risk they were taking. 

Mr. IssA. I appreciate your honesty and candor. Because one of 
the challenges that will not be met in this Congress, but we will 
be dealing with in the next one, is what do we do going forward, 
how do we unwind the history, and then if the Federal Government 
is going to have participation through some form of a GSE, how do 
we make sure this doesn’t happen again and, more importantly to 
me, make sure that executives don’t get paid millions simply be- 
cause they took a lot of these on, and the less they looked and the 
more they took on the higher their bonuses were? And I think you 
would agree that that is part of our undisputed history. 

Ms. Caldwell, I appreciate your presence here. You have been be- 
fore both our Committees and you have always, you have been gra- 
cious and patient for us to ask a lot of questions, often the same. 
In this case I will try not to completely retrace our steps on HAMP, 
but let me go through just a couple of them that I think the record 
is not completely clear on here. 

Although you have made changes in the front end of HAMP re- 
cently, I mean it is an evolving program, isn’t it true that basically 
people do not have an obligation to at least somewhat substantiate 
their income at the very, very, very beginning of an application, 
that they still come in with effectively I make this much, give me 
90 days to prove it? 

Ms. Caldwell. Congressman, effective June homeowners coming 
into HAMP verify their income before the trial modification starts. 
We announced that change in January and had it take effect in 
June. Certainly last year, when we were in the midst of the crisis 
and servicers did not have capacity to verify income up front, we 
did permit homeowners in under stated income. 

Mr. IsSA. Which brings, the question is, in America, particularly 
if you are a salaried employee, and most of the people were, not 
all, but most, why was there ever an expectation that the status 
quo, the lead-in of this thing would be this is how much I make 
and I will prove it later? Because the 90 days in fact stretched on 
in the beginning of this process, didn’t it? 

Ms. Caldwell. That is correct. And I think we certainly, both 
servicers. Treasury and participants in the program, would all ac- 
knowledge that the capacity to collect the documentation, which as 
you stated it seemed like it would be easy, presented a very dif- 
ficult challenge. And we struggled with the documentation for, you 
know, a good period of time. And that is why in January we did 
change the program to require documentation up front, so that we 
wouldn’t have the problems that Congresswoman Waters discussed 



96 


about lost paperwork and not good treatment of homeowners or the 
one that you addressed about the potential for people coming in 
and having the mortgage reduced and then never providing income. 

Mr. IssA. Now, just to make the record clear, as I understand it, 
and correct me if I have misunderstood this all along, but the par- 
ticipants, if they initiate and it goes along anywhere except to a 
permanent modification, you don’t reimburse that, is that correct? 
In other words, the B of A or any other bank or servicer, they are 
eating the front end of the process if it completely fails, isn’t that 
true? 

Ms. Caldwell. Correct, yes. HAMP is a pay-for-success program, 
so the servicers, the investors and the homeowners only receive in- 
centives if the mortgage is successful. 

Mr. IsSA. Let’s try to quantify that. How much have you paid so 
far? 

Ms. Caldwell. Again, I don’t have the exact figures in front of 
me, but I would say approximately $700 million. 

Mr. IsSA. So you paid about half a billion, round number? 

Ms. Caldwell. A little more than that, but that is fair. 

Mr. IsSA. And you have obligated $30 billion, round number? 

Ms. Caldwell. For the HAMP program, correct. 

Mr. IssA. So there is a lot of obligation and not much pay-for- 
success at this point, right? 

Ms. Caldwell. And I think it is important that success is de- 
fined over 5 years. So the amount paid out to date just reflects the 
one time success payment when a modification converts and then 
there is payment that goes through 5 years for each year that the 
modification is successful. 

Mr. IsSA. And that is typically $1,000 at a crack times the num- 
ber of loans and so on. They are relatively small payments per 
loan, right? 

Ms. Caldwell. The payments to the servicer and the homeowner 
are fixed, but for the investor it is a cost share based on the mort- 
gage reduction between 38 and 31 percent, so that could vary by 
a lot. 

Mr. IsSA. So this $30 billion program over 5 years that is serv- 
iced, if you will, on the front end of actually going to completion 
about half a million people, is going to cost us $30 billion over 5 
years. And you are probably aware that in our hearings next door 
the companies, the servicers, the banks, told us that basically any- 
body who got into this 500 million, virtually all of them would have 
renegotiated without the HAMP, that in fact the ones who suc- 
ceeded are the same who would have succeeded otherwise. Are you 
aware of those statements, I assume? 

Ms. Caldwell. I am aware of those statements, yes. 

Mr. IssA. Well, you know. Congresswoman Maxine Waters and 
all of us on the dais represent different constituencies, but we all 
have one thing in common, which is we know that money is fun- 
gible. So if all of the money you paid were obligated, half a billion 
paid out, $30 billion obligated and continuing to escalate, if all of 
it would have been, if these people would have gotten loan modi- 
fications anyway, they would have gotten to stay in their homes, 
assuming they applied, and it could have all been done with no 
Federal assistance, and they still would have gotten substantially 



97 


the same deals, or at least they would have gotten their loans 
which they felt they could no longer afford modified so they could 
afford them, then shouldn’t we take that $30 billion over 5 years 
and ask Congresswoman Waters and Congressman Conyers and 
others where we would like to spend $30 billion helping people in 
need instead? 

It is not just a rhetorical question, it is based on the hearings 
next door and here. It is the greatest question I have going into the 
new year for HAMP, is why do we continue investing in something 
that takes a very long time, delays the disposition of land and our 
homes and we have had testimony from the banks participating 
and nonparticipating that it doesn’t create any substantial amount 
of new modified loans, it simply reimburses for the most part for 
the people they would have done anyway. 

Ms. Caldwell. I think one of the things that, again, is important 
to think about in HAMP is that it does pay for success. And those 
same servicers have also testified that the existence of HAMP fun- 
damentally changed the approach of modification in terms of pay- 
ment reducing and other types of programs. 

Mr. IssA. Ma’am, I have no doubt that in the midst of a crisis 
Republican and Democratic Presidents made decisions along with 
Treasury to try to find ways to change what was a free-fall. But 
Congress has an obligation to not live up to the worst of what Ron- 
ald Reagan always said, which is nothing had, I am paraphrasing, 
had greater immortality than a temporary government program. 
This program seems to have outlived its usefulness in that we are 
no longer in free-fall, we are in a period in which it appears as 
though loan modifications would occur anyway, and that if we 
began looking at the next tranche of $30 billion and said, well, can 
we target it only to those which would otherwise not have success- 
fully been modified, can we modify the use of — I am not saying to 
stop spending money necessarily, but can we spend this money bet- 
ter in other ways than simply rewarding basically banks for doing 
what they would do anyway in their best interest? 

Ms. Caldwell. And I think that is a very important consider- 
ation for Congress to have, but I also would just like to say that 
as we sit here today we have heard stories from many Members 
that modifications are not being done the way they need to be 
done, that the forecast for foreclosures continues to be high, we 
have heard multiple ranges of projections, but as we sit here today, 
you know, my office is charged with making sure modifications get 
done in accordance with program guidelines, and that goes to 2012. 

Mr. IssA. And I appreciate your dedication. You know, the word 
“bureaucrat” is not always a pejorative. You are 

Doing what is your task. Our challenge and Congresswoman Wa- 
ters’ challenge is can we take the next tranche of $30 billion and 
look at those who are failing in what we now call HAMP and say, 
well, wait a second, maybe what we should do is let loan modifica- 
tions occur and only look at those who fail to get a modification 
through an ordinary way and then look at them on a different 
merit basis. 

So I understand that your left and right barriers are your pro- 
gram, and I think you have been ingenious in trying to improve it 
over time. It started off as a terrible program; now it is only a pro- 



98 


gram we are not sure does us any good. But that is a lot better 
than it was initially. 

So Mr. Chairman, I respect that I have gone over my time. I ap- 
preciate it. I look forward to us continuing to figure out if there is 
a way to use these funds better. And I appreciate, and I particu- 
larly do, Phyllis, you have been great, you have done the best you 
can do, I think it has been very good of you to continue to try to 
take a program and make it work better than when it started. And 
I don’t hold you accountable, but I do hope that we hold ourselves 
accountable to look at where the best place to put the dollars are. 

I yield back. 

Ms. Caldwell. Thank you. 

Mr. Conyers. Thank you very much, Darrell Issa. I am pleased 
now to recognize a former Subcommittee Chairwoman, Sheila Jack- 
son Lee of Houston, Texas. 

Ms. Jackson Lee. Mr. Chairman, thank you, and I hope on your 
wisdom that we will continue this effort. I am delighted to listen 
to the questioning of Mr. Issa because he has confirmed of your ge- 
nius that these hearings were long overdue. And I guess you will 
have to hear us pontificate for a little bit. 

Let me, first of all, thank all the witnesses. And coming at it 
from the perspective of the Judiciary Committee, I know that we 
tried some months or more than a year ago to organize the concept 
of bankruptcy and foreclosure to allow the homeowners to work 
their own arrangement out. And it was interesting to hear the 
banking industry and mortgagors saying that we would have a ca- 
lamity. And I frankly believe we have a calamity now, because we 
continue to see foreclosures, the tide has not stopped. And as I un- 
derstand some of my colleague’s questions. Congresswoman Waters 
raised a question of lost paperwork, I raise a question or the point 
of arrogance by banks: We don’t have to worry about the paper- 
work, decisions are already made. And it is just perplexing, com- 
pounded by the fact that it is like pulling steak from a barracuda 
to try to get a loan from a bank today. And of course they threw 
it back on the regulators. 

So I guess as we have listened to this series of questioning, and 
forgive me for not hearing the details of your testimony, I came in 
a little bit on Judge Winslow’s remarks, but I still view where we 
are as a crisis, as a calamity. I don’t see any progress having been 
made. I think the banks are culprits. We have made them richer 
and less sensitive to the intent of this body, which was to create 
greater access to credit, stabilize the marketplace. It is difficult for 
people to secure mortgages today, it is difficult for people to refi- 
nance, there is no relief on foreclosures, and the fat cats keep get- 
ting fatter. 

And I think there is a valid point to the distinguished gentleman 
from California’s comment about whether or not this program is 
working that you are in charge of, Ms. Caldwell, and whether or 
not there needs to be less of a boondoggle for the banks getting 
money to do good stuff and they don’t do it. 

So I would like to raise the question of what considerations is 
Treasury giving to totally modifying what you are responsible for? 
What kind of comfort level do you have with success on this re- 
modification effort, and I have not listened to all that you have re- 



99 


sponsibility for. And what kind of vigorous give and take or over- 
sight or hammer do you have on the banks? What is the punitive 
measure that can be utilized for banks that continuously ignore the 
homeowner? The homeowner is usually one person. They don’t usu- 
ally come in a class action, they don’t usually organize the block 
and say let’s 10 of us go in. It is usually one person at a time. That 
is an easy, easy prey to knock over. You don’t have to even worry 
about that person. Because either by the time they are already out 
of their house, they are foreclosed on, either by the time they don’t 
have the means to stay even in a foreclosed house because they 
can’t pay for other things, maybe they are in that bad a shape, so 
they may go away quickly, particularly if they are not represented 
by counsel. And in this instance I think this was a process where 
they could handle this on their own. 

But how deeply, I asked two questions, I hope you took note of 
them, how deeply does this program that you are 

involved in penetrate beyond the Beltway to provide a real com- 
fort for these homeowners who are still going through foreclosures 
neighborhood by neighborhood, city by city, sometimes it is up, 
sometimes it is down, but it is still continuing? 

Ms. Caldwell. 

Ms. Caldwell. Thank you. Let me just first say that the stories 
that we hear about lost documentation, robo-signing and other 
practices are, you know, disturbing, inexcusable and, you know, 
servicers need to be held accountable in those cases where they are 
violating the laws in States which they do business. You know, the 
program that we operate, the Making Home Affordable Program, is 
a program authorized through TARP that is a contractual relation- 
ship, so it is governed by contract versus enforcement or regulatory 
agency. But when those servicers have signed the contracts we ex- 
pect to hold them accountable. 

Ms. Jackson Lee. In what way; what is the punitive measure? 

Ms. Caldwell. Again, because it is contractual there is no civil 
money penalties or, you know, fines. We have remedies that we can 
withhold incentives on permanent modifications or we can claw 
back money that has already been paid. But our focus now is to 
get more modifications made. 

Ms. Jackson Lee. And do the servicers include banks that you 
have contracted with? 

Ms. Caldwell. The servicers, yes, bank servicers. 

Ms. Jackson Lee. Include banks and others, forgive me for not 
understanding the distinction. Pardon me? 

Ms. Caldwell. Yes. 

Ms. Jackson Lee. All banks? 

Ms. Caldwell. No, not all banks. 

Ms. Jackson Lee. Right, but it does include some banks? 

Ms. Caldwell. It does include banks, servicers that are part of 
banks. 

Ms. Jackson Lee. And this was done administratively or when 
we passed TARP did we instruct Treasury to do this, meaning the 
Congress? Did we instruct or you have done this under the TARP 
funds administratively? 

Ms. Caldwell. I am not sure I have the answer to that. 



100 


Ms. Jackson Lee. We passed TARP. That was a legislative ac- 
tion. 

Ms. Caldwell. Correct. 

Ms. Jackson Lee. Did we create and instruct you on this modi- 
fication program that you are now speaking of, or did you create 
it administratively under TARP using TARP funds? 

Ms. Caldwell. Again, I was not part of Treasury when TARP 
was created, hut I understand that there was always a mortgage 
modification component to it. When I joined, the office had already 
been established. So I don’t know all of the legislative detail behind 
the creation. 

Ms. Jackson Lee. I will let you finish, but I think it is dastardly 
that we would have — I don’t think there has any place in business 
where there is not a punitive measure for breaching contract. And 
for us to just pat people on the back or tap them on the knuckles, 
if you will, a tap-tap and say, oh, naughty, naughty, and they are 
literally killing people and throwing them out of their houses is a 
disgrace. And it may be that we need to remedy that. There needs 
to be some penalties where people feel the pain that they are cre- 
ating for this whole market. 

But finish, if you would. I just want to go to these other wit- 
nesses for questions. So you have got this modification program, it 
is contractual — and you can finish, go ahead. I think the question 
I want to hear from you is the fact that, you know, what is the pu- 
nitive, what is the relief — as I understand it, that you have not im- 
plemented any of the remedies or claw backs, but what is it when 
this process fails and the victims are the sufferers, what do you all 
do? 

Ms. Caldwell. Again, you know, in those cases where laws have 
been violated we expect the servicers to be held accountable. In 
terms of the authority under our contracts, in those cases where 
servicers did not solicit homeowners for HAMP, we have required 
them to suspend those foreclosures and go back and reconsider 
those homeowners for modifications. In terms of those situations 
where homeowners have been inappropriately denied, we ask the 
servicers to reconsider those decisions. 

So again, while we have not gone back and clawed back incen- 
tives at this point in time, remembering we are still, you know, less 
than 2 years into the program and, you know, may in some cases 
be building those steps necessary to impose fines, we have taken 
every step to change the behavior of the servicing industry and 
make sure that homeowners had an opportunity to be fairly consid- 
ered for HAMP. 

Ms. Jackson Lee. Let me move on to Mr. DeMarco very quickly 
and let Julie Williams contribute as it relates to how you fit into 
this process. But Mr. Chairman, I think it is a darn disgrace. And 
I am sitting next to a seasoned Member of the Financial Services 
Committee who has lived through this. Congresswoman Waters. 
And I imagine that they have crafted as much as they could craft 
a structure within the capitalistic system. All of us claim and have 
an affection for capitalism. No one here is waving the socialist flag 
or the Communist flag. But if there is ever a disgraceful debacle 
that has shown no positive relief on behalf of the United States 
Government for its people, its people who pay taxes, its people who 



101 


are the basis of this country, it is mortgage foreclosure, because we 
have gone through it. And so I would simply say that the Judiciary 
Committee needs to look at this. 

I frankly believe there should be punitive measures, jail time. 
Because it is absolutely absurd that people can be comfortable in 
their offices using our money to fool around, mess up and nothing 
happens to them at all. But the poor victim in the home, the home 
that is $1 million or $250,000 or $55,000, you know, is not only the 
victim, but also gets blamed because that is the dodo who got into 
a house that they couldn’t afford. Fraud was limited; it existed, yes. 
But in many instances people were well intentioned by who led 
them to believe what they could handle. And then there was just 
the average Joe, hard working Joe, whose two-income family tried 
to get a brownstone in New York or tried to get a house in Detroit, 
you know the conditions there, or in Houston or in L.A. Or else- 
where. 

So if anyone can answer. Judge Winslow, I didn’t hear your testi- 
mony. I heard it but didn’t hear it. 

Judge Winslow. I am so sorry you didn’t. 

Ms. Jackson Lee. Yes, I Imow. I am going to be reading it 
though. Do you have any insight on this question of a lack of a pu- 
nitive measure, or do you have any insight on why we failed to 
craft the bankruptcy process for holders of mortgages to protect 
themselves from foreclosure. 

Judge Winslow. All right. If I could be sure that I understand 
your question so that I can answer it as accurately as I can. Why 
not have the trustee in bankruptcy and the bankruptcy court han- 
dle the process; is that the question. 

Ms. Jackson Lee. We had legislation that failed to make the 
mark that we were going to include access to the bankruptcy courts 
for mortgage foreclosure, yes, so that all parties could be protected. 
You must have heard that debate, it has been going on for a num- 
ber of years. So I just need yes or no. Do you think that is a viable 
approach? 

Judge Winslow. I do not. 

Ms. Jackson Lee. Why not? 

Judge Winslow. Because the trustee in bankruptcy and the 
bankruptcy judge have an obligation to make a determination as 
to what point all assets have been appropriately distributed from 
the estate of the bankrupt and then there is a release. 

We see, I see on numerous occasions, probably every 4 or 5 pro- 
ceedings that appear before me, at least one and frequently more 
than one bankruptcy which was ultimately released. It is not a sal- 
vation. It is an 

Ms. Jackson Lee. Because my time is limited and the Chairman 
has been very kind and I just have one more question, let me say 
to you I am not convinced. 

My final point is do you think there should be criminal or puni- 
tive measures for a failed process, bankers, servicers and others 
having a dereliction of duty that causes in a potentially criminal 
way for viable homeowners and others to lose their homes? 

Judge Winslow. Yes. 

Ms. Jackson Lee. All right. Thank you, sir. Let me move to Ms. 
Williams and Mr. DeMarco. I will ask you collectively as govern- 



102 


ment representatives, what are you doing to stop the tide of fore- 
closures realistically? And what are you doing to help punish the 
deadbeats, who are servicers who are not doing their job? 

Just start with you, Ms. Williams. 

Ms. Williams. Okay. Just by way of a little bit of background, 
the Office of the Comptroller of the Currency, a bank supervisory 
agency; we are responsible for national banks. We have been — and 
I describe this in my written testimony in some detail — ^very in- 
volved and very active in focusing on causing national banks to im- 
prove their handling of the modification process and to increase the 
volume of affordable sustainable modifications that national banks 
are entering into. 

Ms. Jackson Lee. Do you keep records, can you tell me that you 
have sizably increased that? Do you have punitive measures? Do 
you have criminal measures? Do you have civil fines for their inap- 
propriate behavior? 

Ms. Williams. Yes, we do. Let me break those down. We have 
a substantial amount of data and 

Ms. Jackson Lee. How many, I would like to see that submitted 
to the Committee. 

Ms. Williams. We can provide for you information on modifica- 
tions by types that national banks have entered into, the character- 
istics of the modifications, the extent to which the mods resulted 
in reduced payments of 10 percent, 20 percent, more than 20 per- 
cent. We have a lot of data on that. I am happy to share that with 
you. 

Ms. Jackson Lee. I would appreciate it. Can you give me one an- 
swer, do you have a list of those who have been civilly fined, if you 
don’t have criminal fines or punished for their inactivity? 

Ms. Williams. For their inactivity or 

Ms. Jackson Lee. Their improper, their, if you will, lack of per- 
formance. 

Ms. Williams. We are in the midst right now of a very extensive 
multi-agency examination process that relates to the foreclosure 
documentation and integrity issues. I describe this, there is more 
detail in my written statement. 

Ms. Jackson Lee. Right. 

Ms. Williams. It will be done by the end of December. In the 
weeks after that, we will be evaluating what enforcement and su- 
pervisory steps we want to take. All of the banking agencies are 
a part of this. We have very, very broaden enforcement remedies. 

Ms. Jackson Lee. Well, the question is whether there has been 
any penalties, whether there has been any revocation of charters. 
And let me just say that I love our banks, we have community 
banks, we have large banks, and national banks as you have indi- 
cated. But there has to be an even playing field. There is not in 
this mortgage foreclosure. 

I close on Mr. DeMarco. Do you have any teeth in what you are 
doing? This love of capitalism or this fear that the marketeers 
threaten Congress as they did a few hours before we passed this 
bailout that all would collapse, and we would never see America as 
it was ever again. We see that we are still in the midst of a quag- 
mire. All of these threats I think have frozen the Federal Govern- 
ment into activity. Because you cannot possibly be doing anything 



103 


if we go into our districts and find all these people that are in fore- 
closure, and they will say to you we tried to reach the bank, we 
tried modification and then we can’t even get access to credit on 
another side of the coin. 

Mr. DeMarco. 

Mr. DeMarco. Congresswoman, since we put Fannie Mae and 
Freddie Mac into conservatorship those companies have completed 
about 1.2 million foreclosure alternative transactions. We report on 
that on a monthly basis to the Congress through what is called the 
Federal Property Managers Report. I would be glad to provide a 
copy of that to you. 

With respect to penalties. Congresswoman, Fannie Mae and 
Freddie Mac’s relationship with the mortgage servicers is a con- 
tractual one. And on the basis of contractual violations of represen- 
tation and warranty, Fannie Mae and Freddie Mac have put back 
to mortgage servicers and originators billions of dollars worth of 
mortgages. I provided the actual data yesterday on the Senate side. 
I will be happy to provide the data on that to you. And there is 
still requests outstanding totaling in the billions of dollars. I also 
reported that. I would be pleased to provide that data to you as 
well. 

And I would say with respect to Fannie Mae and Freddie Mac, 
while they are in some sense certainly victims of problems in the 
mortgage servicing thing, they also need to be held accountable for 
the problems that we have in the housing market, and obviously 
the Federal Government through FHFA, which was 6 weeks old at 
the time, placed Fannie Mae and Freddie Mac into conservatorship. 
The CEOs were dismissed from the job, the Boards of Directors, 
much of senior management has been replaced. And yes, in the 
past there have been civil money fines against certain management 
at those companies. 

Ms. Jackson Lee. Well, thank you. It may be that we are the 
only ones who did anything, and certainly Fannie Mae and Freddie 
Mac were the ones that everyone wanted to put on the guillotine 
because it was easy to do. I think we need to look closely at crimi- 
nal fines and other penalties, Mr. Chairman, for this foreclosure 
debacle. No one is getting it, people are still hurting. As long as 
we are fooling around with contractual relationships, there will be 
no action whatsoever. The banks will cry foul, they will talk about 
the system is collapsing and the world is coming to an end, and we 
will stand back and hold our hands up and all of America will be 
walking past foreclosed properties. 

Mr. Chairman, I thank you for this hearing and I hope the Judi- 
ciary Committee can get its teeth into this process. I yield back. 

Mr. Conyers. Thank you, Sheila Jackson Lee. 

I turn now to the Ranking Member of the Committee, the gen- 
tleman from Arizona, Mr. Trent Franks. 

Mr. Franks. Thank you for that advancement. I appreciate the 
way that you advanced my position here. It is temporary? 

Mr. Conyers. Yes. 

Mr. Franks. He says it is temporary. Thank you, Mr. Chairman. 

Mr. DeMarco, if I could begin with you, sir. In your written testi- 
mony you state that Freddie Mac and Fannie can require a servicer 
to pay damages if the servicer does not follow the servicer guide- 



104 


lines. And of course that seems very appropriate to me. At the 
same time it perhaps introduces a little more uncertainty into the 
current crisis which may compound the problem, at least in the 
short-term. 

But my first question is whether Freddie or Fannie have actually 
sought any damages. It is a little related to Ms. Jackson Lee’s 
question, but as a result of the robo-signing controversy, have you 
sought any damages from any of those entities? 

Mr. DeMarco. Servicers were reminded on October 1st by 
Fannie and Freddie that robo-signing or those sorts of mistakes 
were not following proper procedures and foreclosure process and 
is a violation of the seller-servicer agreement. They have been 
alerted that this makes them subject to penalty, and the position 
at the moment, this is still fairly early, is we are assessing what 
the damage has been, to know what sort of remedy under the con- 
tracts to pursue, because we are still trying to find out whose got 
the problem, what the scope of it is and what has been the damage 
to Fannie Mae and Freddie Mac as a result of that. There has not 
been an assessment made to date that I am aware of, but they 
were alerted of this possibility as set forth back in the contract 
back on October 1st. 

Mr. Franks. Given the conservatorship, the question is sort of a 
hard one to ask, I ask if Freddie on Fannie have done it or if you 
have done it. Who is responsible for making the decision on wheth- 
er or not to seek damages in the first place given the conservator- 
ship in place at this time? 

Mr. DeMarco. As we describe at the time the two companies 
were placed into conservatorship, the day-to-day operations of the 
company were delegated to the senior management, the manage- 
ment team and the reconstituted boards of directors of the com- 
pany, so that there could be normal functioning corporate govern- 
ance. So day-to-day operations, including executing and imple- 
menting and carrying out terms of contracts, are the responsibility 
of management. But I can assure you. Congressman, on this matter 
that has all of our attention, we are paying close attention to what 
the companies are finding with respect to added losses that they 
may be incurring as a result of these matters. And I would expect 
that appropriately remedies, fines, so forth, under the terms of the 
contract would be pursued. 

Mr. Franks. That makes sense. In other words, it is really their 
responsibility at this point, but you are having some very pointed 
discussions with them? 

Mr. DeMarco. Yes. As conservator we are ultimately respon- 
sible. And the companies understand quite well and I am pleased 
with the support and activity of the senior management and the 
board. They fully understand that both of these companies are op- 
erating only as a consequence of the backstop provided by the 
American taxpayer, that they have a responsibility in operating 
these businesses, to do so in a way in which it minimizes losses on 
these troubled mortgages, because those losses are passing through 
to the American taxpayer. 

Mr. Franks. I guess that probably tees me up for the next ques- 
tion. Given the conservatorship of Freddie Mac and Fannie Mae, 



105 


how would an extended nationwide foreclosure moratorium poten- 
tially affect the taxpayers? 

Mr. DeMarco. Congressman, I believe such an extended nation- 
wide moratorium would add cost to the taxpayer. And I go into this 
a little bit in my written statement, but I would not support a na- 
tionwide moratorium. I don’t see the grounds for it. At this point 
in time I think that absolutely where there are mortgage servicers 
that are not processing foreclosures properly, if they are in viola- 
tion of State law, if they are not doing it according to contract, that 
that must be corrected, but I do not believe that we have the evi- 
dence to suggest that a nationwide foreclosure moratorium would 
on balance help this matter. I think that it would further harm 
neighborhoods and increase costs to the taxpayer. 

Mr. Franks. I understand. 

Mr. Chairman, some fairly learned voices have questioned the le- 
gality of the Mortgage Electronic Registration System, which is 
commonly known as the MERS system. And since about 60 percent 
of the Nation’s residential mortgages are recorded in the name of 
MERS, Inc., the legality of this sort of obscure entity should either 
be established or addressed at least. And questions have been 
raised about MERS being both acting as an agent and as a prin- 
cipal in mortgage deals, and it just seems like the incoherence of 
the MERS legal position then becomes fairly challenging to sort 
out. 

This may be something for Judge Winslow to look at here, but 
can you address those concerns? Judge, if it is all right with you, 
sir, I will start with you, but I think this will be something any- 
body can take a shot at because in property rights, protecting, you 
know, property rights it becomes obviously very critical to define 
precisely who owns what. And this seems to blur that line pretty 
dramatically in my mind. 

Judge Winslow. I think the blurring started after 1997, and that 
is about the creation date of MERS Corp. and MERS. Through the 
years up to about 2004, MERS took a position they were a nominee 
only and did not act as a foreclosure agent. There then came a time 
up until approximately 2007 when MERS changed that position 
and stated that they would not any longer act as an agent to fore- 
close, particularly after the beginnings of the robo-signing recogni- 
tion. It is still the case that MERS from time to time in the older 
cases, as well as in some of the newer cases where they, I under- 
stand it from the Web site, believe that they have the actual note 
in hand, that they will act as a mortgagee or in the capacity of a 
mortgagee in foreclosure as a plaintiff. I don’t think that without 
having an equitable interest in the mortgage that the nominee in 
equity has the right to commence a foreclosure proceeding. 

Mr. Franks. Well, judge 

Judge Winslow. Does that make sense? 

Mr. Franks. You very eruditely defined why I asked the ques- 
tion. 

Judge Winslow. Thank you. 

Mr. Franks. I am impressed. But obviously you see the nexus of 
the question. And Ms. Williams, if you want to take a shot at it. 



106 


Ms. Williams. Okay. Let me add a couple of pieces here. There 
is a lot of confusion around because there is a lot of imprecise lan- 
guage that is used in some of the descriptions of the process. 

Mr. Franks. Precisely, it’s imprecise. 

Ms. Williams. It takes you back to your real property classes in 
law school about the difference between the mortgage note and the 
mortgage. MERS doesn’t hold the note; the note will go ultimately 
to a document custodian. What MERS is doing is acting as a nomi- 
nee with respect to the mortgage. And it is the mortgage that gets 
recorded, not the note and there is confusion about that. 

Issues about MERS’s status are fundamentally issues under 
State property law. And that law is long-standing, our Acting 
Comptroller sometimes refers to these principles as going back to 
the days of Queen Elizabeth I, and some of that is probably quite 
right. So you are dealing with a situation where you have a modern 
type of electronic registry in the context of State property laws that 
have principles that are really rather quite old. 

Separate from that, with respect to MERS I just want to add — 
and this is in my written testimony — that we are doing an exam- 
ination of MERS and how MERS operates and the processes and 
procedures that it follows in order to do what it does. It is an inter- 
agency examination. The FHFA examiners are also part of this as 
well as examiners from the Fed and the FDIC. So looking oper- 
ationally at MERS is also part of the examination work that we 
have underway right now. 

Mr. Eranks. I think Professor Peterson might have been inclined 
to ask some of those same questions. 

I guess my last question is this, Mr. Chairman, and I address it 
to the group here to see who might best answer it, which entity 
created this MERS system? What was the fundamental reason for 
it? What was the rationale for it? And of course States feel like to 
some degree that their statutorial authority has been subordinated 
in this process and maybe they are right, maybe they are not, but 
those questions. And what is the answer? What would you do to 
address it? 

Judge, you sound like you are ready to take it on. 

Judge Winslow. I would be very pleased to. We have been in 
touch with MERS, my office has, since approximately 2004, speak- 
ing to general counsel, exchanging e-mails and trying to have an 
understanding of precisely what it is that they do. So at any par- 
ticular moment in time their function was defined, but morphed 
into something else thereafter. Typically and from the beginning 
MERS Corp., which is owned substantially by banks, insurance 
companies like AIG and others, look to using companies such as 
MERS in order to facilitate the transfer of the mortgage. And it can 
do so in an inexpensive fashion and in a rapid fashion and some- 
times so rapidly that the transfer takes place before the County 
Clerk has any notice, as a for instance, of the transfer. And that 
does become a problem even though in many States it is permis- 
sible to transfer a mortgage without making the change in the 
records of the County Clerk. 

Mr. Eranks. So would anyone want to suggest any way that it 
should be addressed at this point? Is there anything that you think 
is an important next step? 



107 


Mr. DeMarco. 

Mr. DeMarco. Congressman, I would simply say that the review 
that Julie Williams mentioned is underway and I would like to see 
what comes out of that, but the basic premise here that there be 
a way of adding liquidity to the mortgage and mortgage servicing 
is something that developed in part in response to the growing 
mortgage industry and the growing transfer of mortgages, mort- 
gage servicing, and the development of securitization. And this util- 
ity, if you will, is something that has been developed to contribute 
to facilitating development of securitization, the development of 
securitization, developed to be able to better access global capital 
markets, to ultimately be able to reduce mortgage costs for bor- 
rowers. 

So while there are things, questions being raised about MERS, 
they are being looked at and there should b^e, I think we need to 
keep in mind here that this is part of, you know, as has been men- 
tioned, coming to grips with technology, securitization and ways of 
facilitating financial transactions. 

Mr. Franks. So you are really not saying that it was part of 
catalyzing the bubble, it was just sort of one of the accoutrements 
that went with it, it sounds like, and that sounds reasonable. 

Mr. Chairman, I yield back and thank you all for coming here 
today. 

Mr. Conyers. Thank you, Trent Franks. I am now pleased to 
recognize the gentlelady from California from California, Dr. Judy 
Chu. 

Ms. Chu. Thank you, Mr. Chair. I would like to ask Justice 
Winslow about the remedies available in court. According to the 
Washington Post, some judges in New York are estimating that 
they are dismissing 20 to 50 percent of the foreclosure cases on the 
basis of sloppy or fraudulent paperwork that was filed by lenders. 
In one case the court ruled in favor of a homeowner in Long Island 
and cited that the mortgage company’s paperwork on her fore- 
closure case was flawed and that its behavior was repugnant. The 
judge erased the family’s $295,000 and gave the house back for 
free. 

Now while this may be an unusual result, it does illustrate that 
there is the power of the court to remedy some of these funda- 
mental flaws in the system. I would certainly like that to be avail- 
able in California, but unfortunately we are a non judicial State 
where the lender doesn’t have to prove to a judge that they have 
to foreclose on a homeowner. 

The problem is how could you catch this kind of repugnant pa- 
perwork in this kind of situation where you are a nonjudicial 
State? And how could an average homeowner without high level 
mortgage knowledge even know what to look for? 

Judge Winslow. Thank you so much for the question. And I do 
want everyone to realize that the case that you are referring to, the 
Yano case, has in fact been reversed by the Appellate Division Sec- 
ond Department with some admonition to Judge Spinner that he 
exceeded his authority in revoking, terminating, voiding the under- 
lying mortgage obligation. 

I believe that cases such as this on one side are positive because 
they bring to the attention of the community the nature of the 



108 


problem that we have. On the other, I think they are not positive 
because they lead to unpredictability, inability to understand what 
is going to happen next. We have the tools right now under 3408 
of the C.P.L.R. And under the direction of the administrative rules 
established by Jonathan Lippmann and Ann Pfau, the Chief Ad- 
ministrators, State of New York, to do two things. One is to require 
the certification of all documents by the attorney representing the 
lender. And failing to do that, there would be implications under 
what is called Rule 130 of the Uniform Trial Rules. So there are 
significant penalties available for failing to comply with that par- 
ticular rule. 

The use of an extreme to address a particular problem may not 
always be more than today’s sound byte. And I am afraid that in 
some cases that is what is happening and an improper conclusion 
is being reached by the public that oh, I have a chance now to wipe 
out my mortgage. That is not what is happening in New York 
State. 

New Jersey adopted the same rule literally 3 days ago about re- 
quiring the note and mortgage to be together, and it is growing into 
a State, common law State that has much of the same rules as 
New York. And you know certainly about Florida. So there are 
within our system right now penalties available under Rule 130 
which provide for $10,000 fines to both the attorney and the prin- 
cipal in a case, plus all of the costs associated with the defense of 
the case by the defendant or the plaintiff who was wronged in the 
matter. 

That is the answer that I think we should follow up on. If we 
need more than that, then I think the trouble is going to be of such 
a nature that the draconian method, if applied, is going to ulti- 
mately find a way to raise its head and show that it is not the an- 
swer. 

Ms. Chu. Do you think it is true that the judges in New York 
are estimating that they are dismissing 20 to 50 percent of fore- 
closure cases due to sloppy paperwork? 

Judge Winslow. I am sorry? 

Ms. Chu. You said that the Yano case was reversed. 

Judge Winslow. Yes. 

Ms. Chu. But in terms of the other judges the Washington Post 
said that they were dismissing 20 to 50 percent of the foreclosures 
cases on the basis of sloppy or fraudulent paperwork that was filed 
by lenders. 

Judge Winslow. Yes. In those particular cases I will tell you 
what I do and I don’t think that it is substantially different than 
many of the judges of this State do. There is either a motion for 
a default judgment, the 3215, or a motion for summary judgment, 
3212, which is made by the plaintiff. If in fact when I examine the 
submission it is faulty, dismiss the submission and look at the un- 
derlying action. And if there is no basis for the underlying action, 
dismiss that. That still allows the lender the opportunity to remedy 
it, if the lender can. So the matter doesn’t end and we don’t have 
a circumstance, with rare occasions, where the lender is deprived 
of any action or claim that it could maintain against the borrower. 

Ms. Chu. I am still thinking about any State over the next 2 
years an additional 7,000 foreclosures are expected and an almost 



109 


10 percent of these could be saved through a court supervised 
modification. 

Judge Winslow. Yes. 

Ms. Chu. What concrete remedies do you think are available in 
a State like mine? 

Judge Winslow. I’m sorry, how did I get that information? 

Ms. Chu. Well, I am just talking about California, which is a 
nonjudicial state. 

Judge Winslow. Okay, and? 

Ms. Chu. What concrete remedies are available in our State? 

Judge Winslow. What can we do about the 7,000? 

Ms. Chu. Yeah. 

Judge Winslow. What we can do about the 7,000 is to try a me- 
diation, but that is the most. And I don’t believe it is going to be 
effective. I have not seen mediation work as well as I would like 
or hope to see because both sides have the opportunity to say no. 
But since the 7,000 constitute notice only of a pending default mat- 
ter which will result in a foreclosure, there is nothing that the 
State — that New York State can do other than to make the sugges- 
tion that there be a mediation. 

Ms. Chu. Okay, thank you. 

Judge Winslow. Thank you. 

Mr. Conyers. Our final questioner for the day is the distin- 
guished gentleman from Florida, Mr. Deutch. I want to commend 
him, he has been at the beginning of these hearings. He has been 
through much of the middle part of it, and now he will be the final 
Member to question the panel. The gentleman is recognized. 

Mr. Deutch. Thank you, Mr. Chairman. Let the record show, 
Mr. Chair, that even as I was not sitting here I did watch the hear- 
ing as I was eating my sandwich. I appreciate the opportunity. I 
would like to go back to Judge Winslow for 1 second. 

The certification process that you described with the $10,000 
penalty, what happens if there is a false certification that is discov- 
ered only when it is too late? The fraud, the robo- signature, the no- 
tary example that you gave, some other violation, mortgage 
servicer, whatever it is, it appears too late and the homeowner has 
been foreclosed out. 

Judge Winslow. As about as bad as it could possibly be, because 
you can set aside, you can set aside that whole transaction and re- 
quire one of two things, either an enforcement proceeding, which 
would require that the property be returned to the original home- 
owner-borrower, or that damages equal to the actual loss be paid 
by the lender or the nominee who commenced the foreclosure ac- 
tion. 

Mr. Deutch. Thank you. And Ms. Williams, given the late hour 
and the votes that were just called, I will say that I do have some 
serious concerns about the findings in the congressional oversight 
panel report from the 16th of November, particularly the 
securitization process. I will submit those to you as follow-up ques- 
tions. 

But I did want to return to something you said earlier in an ex- 
change you had with Mr. Goodlatte. He had asked about why your 
office had not paid attention to this sooner; you talked about the 
focus being on modifications. The answer was there were no warn- 



110 


ing signs about foreclosure documentation that were triggering any 
red lights. There was an article in 2007 about some, I think it was 
Deutsche Bank where the foreclosure — 2007 in fact where Deut- 
sche Bank lacked standing to foreclosure in 14 cases because it 
couldn’t produce the documents. That was followed by other cases 
around the country. I think it would be helpful to understand how 
it is that we might have missed those, and at this point what is 
in place to ensure that we don’t miss something like that going for- 
ward? 

Ms. Williams. A perfectly fair, appropriate question. What I was 
trying to explain is that we didn’t have indicators of a systemic 
programmatic problem with the foreclosure documentation. I think 
that we would not argue that there have been situations that have 
occurred over the course of the last several years where a par- 
ticular practice or particular situation, a particular loan that in- 
volved a bank, a national bank or otherwise, was not handled prop- 
erly and that there have been instances of litigation over that. But 
what we have typically looked at in the examination process when 
we are focusing on what I term general business processes, how 
you sign the documents, doing the notarization properly, is the 
bank’s internal control processes, their quality assurance and their 
audit to see that those issues are being identified and they weren’t. 
And the issues weren’t surfacing in our own consumer complaint 
system either. 

Mr. Deutch. Excuse me, if I may, just to fast forward, you have 
acknowledged earlier that this raises concerns about the overall in- 
tegrity of the foreclosure process. Certainly in my State of Florida 
this is a devastating crisis and the integrity of the entire process 
has absolutely been called into question. 

So I would like to address what is going to be happening through 
your office, through the OCC? The OCC’s mission is to regulate and 
supervise national banks. What will be happening? You talked 
about the potential for civil money penalties, you talked about the 
potential for criminal referrals if warranted. Who is making that 
determination? Whose conducting the investigation? How much 
staffing is there? How can we be assured that this report that will 
be coming out in the next few weeks will actually lead to the nec- 
essary actions we take to restore some integrity to this process? 

Ms. Williams. Right, right. First of all, what is being done right 
now, and what we initiated a number of weeks ago when the prob- 
lem came to light as a result of the Allied Bank situation is we im- 
mediately directed the major servicers that we supervise to do a 
self-assessment and they did self-identify that they had some of the 
same issues. That resulted in them stopping foreclosures and cor- 
recting practices that were then being conducted. So there is a cor- 
rective process that was already initiated. This is essentially what 
I am trying to say. 

At the same time we began the process and teed off a little while 
later after it was organized with other agencies a very comprehen- 
sive, horizontal, multi-servicer examination process that we are in 
the midst of right now, and it will be as a result of what we find 
when we conclude those examinations that will be the basis for the 
decisions that at least the banking agencies would make in terms 
of what type of supervisory or enforcement actions we would take 



Ill 


with respect to the institutions that we supervise. We expect that 
we will be done with the on-the-ground exam work by the end of 
this month. The results will be beginning to be communicated to 
the institutions shortly thereafter in the public report that the 
agencies are envisioning in January hopefully. 

Mr. Deutch. Right. And you said that there may be civil money 
penalties or there may be criminal referrals. 

Ms. Williams. I was describing the very broad range of types of 
powers that the banking agencies have. 

Mr. Deutch. Who will be making those determinations? 

Ms. Williams. Each banking agency will make those determina- 
tions with respect to the institutions that we have jurisdiction over. 

Mr. Deutch. And they will be making those determinations 
based on what? Is there anything anecdotally that we have seen in 
any of these accounts in the various newspapers around the coun- 
try, is there anything that stands out as the type of activity that 
if confirmed might lead those sorts of penalties? 

Ms. Williams. Well, there clearly have been breakdowns in con- 
trols and oversight, but we need to get to the end of our examina- 
tion process to understand the dimensions of the problems, if that 
was all, if there is more of what else needs to be fixed before we 
can make any final decisions about what the appropriate remedies 
and sanctions are. 

Mr. Deutch. Okay. Finally, Mr. Chair, let me understand then, 
there is a public report that will be coming out in January? 

Ms. Williams. Well, what the agencies have committed to do is 
to come out with — the particular contours of this, I don’t think has 
been decided, but a form of public report on the results of the hori- 
zontal exams. It would not, I would expect, be bank specific, but 
it would talk about the types of issues that were discovered, sort 
of lessons learned for the servicers and also perhaps serve as a 
basis for the agencies to think about developing some uniform 
standards for mortgage servicers and also for the agencies to think 
about techniques to use going forward for our own supervision. 

Mr. Deutch. And I would respectfully suggest that uniform 
standards going forward will be helpful. But there are hundreds of 
thousands of foreclosure cases winding their way through the 
courts in Florida through this rocket docket process where separate 
foreclosure courts have been established. Those hundreds, the hun- 
dreds of thousands of citizens in my State aren’t worried about uni- 
form standards that will be applied proactively. They want to be 
sure that the actions that have been taken thus far to the extent 
that there is some evidence of fraudulent activity or a pattern of 
fraud, whatever is necessary for there to be penalties, that the law 
is upheld so that there is some confidence brought back into this 
foreclosure process and so that they know that the consumers of 
my State and nationwide are actually receiving the just due that 
they deserve. That is what I hope comes from this. 

Ms. Williams. Yes, sir, we understand that. 

Mr. Deutch. Thank you, Mr. Chair. 

Mr. Conyers. Thank you, Mr. Deutch. Our gratitude to all of the 
witnesses. We appreciate your bearing with us. There will be an 
additional hearing in which the second panel will be rescheduled 



112 


and the bankers, of which there are approximately six, that are 
also scheduled to testify on this matter. 

And if Mr. Franks has any comment he can make it now. 

Mr. Franks. Thank you all for being here. 

Judge Winslow. Thank you, sir. 

Mr. Conyers. And the hearing stands adjourned. 

[Whereupon, at 2:50 p.m., the Committee was adjourned.] 



FORECLOSED JUSTICE: 
CAUSES AND EFFECTS OF THE 
FORECLOSURE CRISIS (PART II) 


WEDNESDAY, DECEMBER 15, 2010 

House of Representatives, 
Committee on the Judiciary, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:15 a.m., in room 
2141, Rayburn House Office Building, the Honorable Henry C. 
“Hank” Johnson, Jr. presiding. 

Present: Representatives Scott, Watt, Johnson, Chu, Deutch, 
Schiff, Smith, Sensenbrenner, Coble, Gallegly, Goodlatte, King, 
Franks, and Rooney. 

Staff Present: (Majority) Susan Jensen, Counsel; James Park, 
Counsel; Reuben Goetzl, Clerk; and Zachary Somers, Minority 
Counsel. 

Mr. Johnson. [Presiding.] The Committee will come to order. 
Good morning, and before I recognize myself for a brief statement, 
I do want to welcome Senator Sheldon Whitehouse from the State 
of Rhode Island, who is with us today to testify regarding the 
Home Affordable Modification Program. This is the continuation of 
a hearing that started either last week or a week before that, and 
we had to call it off due to votes, a long series of votes. And so I 
appreciate the second panel members for coming today. 

We will first hear from Senator Whitehouse. Senator Whitehouse 
is very busy over in the Senate and doesn’t have a lot of time. So 
without any further adieu, I would like to recognize him. He has 
for more than 20 years championed health care reform, improving 
the environment, solving fiscal crises, and investigating public cor- 
ruption. As Chair of the Senate Judiciary Committee’s Sub- 
committee on Administrative Oversight and the Courts, Senator 
Whitehouse has been a fearless consumer advocate on various 
issues, particularly in the area of helping homeowners save their 
homes from foreclosure. 

We very much look forward to his comments and appreciate his 
contribution to today’s hearing. 

Would you begin. Senator? 

TESTIMONY OF THE HONORABLE SHELDON WHITEHOUSE, 

A U.S. SENATOR FROM THE STATE OF RHODE ISLAND 

Senator Whitehouse. I will gladly do that. Representative John- 
son. I thank you for the opportunity to testify. Ranking Member 
Smith, Members of the Committee. 

( 113 ) 



114 


Sadly the foreclosure crisis remains unabated in my home State 
of Rhode Island and many other parts of the country. And I appre- 
ciate that you have convened this hearing in the final days of the 
111th Congress to inquire that this issue. 

Mr. Johnson. And Senator, will you pull that microphone up just 
a little closer. Thank you. 

Senator Whitehouse. I look forward to working with this Com- 
mittee on legislation next year. 

In my capacity, like yours. Representative Johnson, as Chairman 
of the Subcommittee on Administrative Oversight and the Courts, 
I have chaired several hearings recently on the foreclosure crisis, 
most recently in late October. At that hearing a constituent of 
mine, Larry Britt from Riverside, Rhode Island, told a story that 
is probably familiar to this Committee. 

Larry had applied with his mortgage servicer for a mortgage 
modification under the Obama administration’s Home Affordable 
Modification Program, which we call HAMP, and shepherding that 
request had become for Larry a nearly full-time job. Time and 
again over a 19-month period, the mortgage servicer asked Larry 
to submit, and resubmit, and resubmit document after document. 
Despite Larry having FedEx and facsimile records proving that he 
had already submitted those documents, the bank consistently al- 
leged that Larry failed to send in the necessary paperwork and he 
had to do it over and over again. When he tried to clear up things 
over the phone he was punted from department to department, 
never once during his 19 months of many calls reaching anyone 
who appeared to have any authority to make a decision. 

After 19 months of this bureaucratic nightmare, the bank finally 
approved Larry for a mortgage modification. The modification pa- 
pers came to him via FedEx just 1 day after a bank representative 
told him that he didn’t qualify for a modification. While he is cau- 
tiously optimistic with those papers in hand, he still isn’t certain 
that the bank won’t changes its mind again. 

Larry’s story and thousands more like it get to a story of bu- 
reaucracy run amok at the very heart of the foreclosure crisis. 
Mortgage companies unwilling or unable to efficiently evaluate 
modification requests, homeowners and mortgage investors in 
limbo, suffering the consequences. When the paperwork runaround 
leads to foreclosure, a family loses its home, neighbors lose prop- 
erty value, communities lose tax revenue. Investors who purchase 
the right to the mortgage payments may lose out too. Often the 
foreclosure is not necessary. 

I met with a group of Rhode Island realtors the other day and 
every single one sitting around the table had the same story. Each 
one of them had at least one short sale nailed down with a buyer 
and a seller and had the experience of a foreclosure notice appear- 
ing and interrupting the short sale. Obviously that was the worst 
outcome for the homeowner. It was also a worst outcome for the 
investors, because the result from the foreclosure sale was worse 
than the outcome that had been agreed to in the short sale. 

In the age of securitization the servicer merely serves as a proc- 
essing agent and may not work in the interest of the people who 
actually own the mortgage. And in the age of corporate bureauc- 
racy, the left hand may not know what the right hand is doing. 



115 


While the program was well-intentioned, the poor performance of 
the HAMP has demonstrated that cash incentives alone won’t get 
the banks to operate effectively and in good faith. A different mech- 
anism is needed to ensure compliance. 

In the past I had focused on proposals to give bankruptcy court 
judges the power to reduce the principal on primary residences 
mortgages, the same way they can for other mortgages on vacation 
homes, on loans for cars and boats. While I have long believed that 
this is the most efficient and least costly way to keep families in 
their homes and many observers agree, the large banks have 
fought against it with their full lobbying might. 

Despite House passage of cram-down legislation in March of 
2009, for which I thank and applaud you, we in the Senate have 
been unable to overcome filibusters. Given these political realities 
I decided to add to the focus of my Subcommittee a different ap- 
proach, already underway in several bankruptcy courts. Under pro- 
grams adopted in bankruptcy courts in Rhode Island, New York, 
Florida, and Vermont, the court may order the homeowner and the 
mortgage servicer to sit down and negotiate in good faith, a settle- 
ment that is preferable to foreclosure for all parties. 

While judges have the ability under the programs to appoint a 
formal mediator if the informal talks don’t work, in practice it has 
not been necessary in the vast majority of cases. For most home- 
owners the mere chance to speak directly with their mortgage com- 
pany, with someone who has some authority is enough to lead to 
a mutually beneficial agreement. 

Under the bankruptcy loss mitigation programs the power of the 
court to compel good faith talks breaks through the bureaucratic 
maze of the voluntary modification programs. The court of course 
does not have the power to force a settlement, but it can force the 
parties to talk to each other, and that can avoid a costly foreclosure 
that will benefit no one. 

The programs in Rhode Island and the other States were de- 
signed with the input of creditors and homeowners and have been 
successful to date. I believe that the courts have appropriately im- 
plemented these programs under their section 105(d) authority to 
convene pretrial status conferences. Unfortunately, one servicer 
has challenged the authority of the bankruptcy court in Rhode Is- 
land to require it to come in and talk to the homeowner before it 
forecloses on their home. I have no doubt that the court’s authority 
will be upheld eventually, but it could be years of litigation and ap- 
peal before the parties have a final answer. In the meantime other 
judges around the country may be reluctant to adopt a program 
facing such a challenge. 

I proposed a simple legislative fix that would clarify that bank- 
ruptcy courts can run foreclosure loss mitigation programs, can 
make parties talk with each other before someone’s home gets 
taken away. I hope that this Committee will help me pass it into 
law early next year. It seems plain and noncontroversial. 

The American people are tired of taxpayer bailouts for banks, 
and we owe it to them to support a sensible program that comes 
with zero cost to the taxpayer. Bankruptcy will not be the answer 
for every homeowner, but the loss mitigation programs can help 
homeowners like Larry cut short a stalled application process and 



116 


finally get an answer to their modification request. One could even 
imagine that the good sense of this could cause it to propagate out- 
side of the bankruptcy process on a voluntary basis. 

In Rhode Island bankruptcy court loss mitigation has already 
saved 100 homes and it has the potential to save thousands more 
across the country. I believe that makes it worth supporting. 

Once again, thank you for the opportunity to take part in this 
hearing and I commend your good work. Thank you, Mr. Chair- 
man. 

[The prepared statement of Senator Whitehouse follows:] 



117 


Prepared Statement of the Honorable Sheldon Whitehouse, 
A U.S. Senator from the State of Rhode Island 


United States House of Representatives 
Committee on the Judiciarj' 

"Foreelosed Justiee: Causes and Effeets of the Foreclosure Crisis — Part If” 

December 15, 2010 

Statement of Senator Sheldon Whitehouse 

Chairman Conyers, Ranking Member Smith, Members of the Committee, thank you for the 
opportmiity to testify here today. Sadly, Ore foreclosure crisis remains ruiabated in my state of 
Rhode Island and many other parts of the country. 1 very much appreciate you convening this 
hearing m the final days of tire 1 1 Itli Congress and look forward to working with you on 
legislation next year. 

In my capacity as Chairman of the Senate Judiciary Subcommittee on Administrative Oversight 
and the Courts, I have chaired several hearings on the foreclosure crisis, most recently in late 
October. At that hearing, a constituent of mine - T.arry Britt from Riverside, Rhode Island - told 
a story that is probably familiar to this Committee. Larry had applied with his mortgage servicer 
for a mortgage modification under tlie Obama Administration’s Home Affordable Modification 
Program (HAMP), and shepherding that request had become for him a full-time job. l ime and 
again, over a nineteen-montli period, the mortgage servicer asked Larry' to submit and resubmit 
and resubmit document after document. Despite Fed Ex and facsimile records proving his 
submissions, the batik consistently alleged tliat Laiiy failed to send in necessary papenvork. 
When he tried to clear things up over the phone, he was punted from department to department, 
never once duiing his many calls reaclung anyone who appeared to have any authority to make a 
decision. 

After nineteen months of this papertt'ork niglitmare, the bank finally approved Larry for a 
mortgage modification. The modification papers came to him via Fed Ex just one day after a 
baiik representative had told him tliat he didn't qualify for a modification. While cautiously 
optimistic, he still isn’t certain that the bank won’t change its mind yet again. 

Larry's story, and thousands more hke it, get to a story' of bureaucracy run amok at the very heart 
of the foreclosure crisis: mortgage companies miwillmg or unable to efficiently evaluate 
modification requests; homeow'ners and mortgage investors in limbo suffering the consequences. 
When the paperwork run-around leads to foreclosure, a family loses its home, neighbors lose 
property value, and communities lose tax revenue. Investors, who purchased the right to the 
mortgage payments, may lose out too. Often the foreclosure is not necessary. I met with a group 
of Rhode Island realtors and every one had had a short sale nailed down, only to have the deal 
interrupted by a foreclosure notice, with a w'orsc outcome for the homcow'ncr, and the investors, 
from a worse price in foreclosure. In the age of securitization, tire servicer merely serves as 
processing agent and may not work in the interests of the people who actually ow'n the mortgage, 
and in tlie age of coiporate bmeaucracy, tire left hand may not know what tlie right hand is dohig. 

Wilde tlie program was w'ell-mtentioned, tlie poor perfoimance of the HAMP has demonstrated 
that cash incentives alone w'on’t gel the banks to operate in good faith: a different mechanism is 
needed to ensure comphance. 


1 



118 


In Lhe pasL, I had focused on proposals lo give bankruplcy court judges the power to reduce the 
principal on primary residence mortgages, the same way they can for most other loans including 
those on vacation homes, cars, and boats. While I have long believed this to be the most 
efficient and least costly way to keep famihes in their homes, and many observ'ers agree, the 
large banks have fought against it with their full lobbying might. Despite House passage of 
“cramdown” legislation in March of 2009, I’m sorry to say we have been unable to overcome 
filibusters in the Senate. 

Given these political realities, 1 decided to add to the focus of my subcommittee a different 
approach, already underway in several bankruptcy courts. 

Under programs adopted in bankiiiptcy eouits in Rhode Island, New' Y ork, Florida, and 
Vermont, the court may order tlie homeowner and mortgage senicer to negotiate m good faith a 
setllement that is preferable to foreclosure for all parties. While j udges have the ability imder the 
programs to appoint a fonnal mediator, it is not necessary in the vast majority of cases. For most 
homeowners, the mere chance to speak dhectly with then mortgage company is enough to lead 
to an agreement. 

Under tlie bankruptcy loss mitigation programs, tlie pow'er of the court to compel good faith talks 
breaks tlirough the bureaucratic maze of the voluntary modification programs, lhe court does 
not have the power to force a settlement, but it can force the parties to tiy to talk to each otlier, 
and that can avoid a costly foreclosure that will benefit no one. 

The programs in Rhode Island and the other states were designed with the input of creditors and 
homeowners and have been successful to date. I believe that the courts have appropriately 
implemented tliese programs under their Section 1 05(d) authority to convene pre-trial status 
conferences. Unfortunately, one servieer has challenged the authority of the bankruptcy court in 
Rhode Island to require it to negotiate tmder the program. I have no doubt that the court’s 
authority will be upheld eventually, but it could be years of appeals before the parties have a 
final answer. In tlie meantime, other judges around the country may be reluctant to adopt a 
program that may be challenged. 

I have proposed a legislative fix that would clarify tliat bankruptcy courts can run foreclosure 
loss mitigation programs, and make the parties talk with each other before someone’s home gets 
taken away. T hope that this committee will help me to pass it in to law early next year. The 
Amencan people are tired of la.xpayer bailouts for banks, and we owe it to them to support a 
sensible program that comes with zero cost to the taxpayer. Bankruptcy will not be the answ'er 
for every homeowner, but the loss mitigation programs can help homeowners like Larry cut short 
a stalled application process and finally get an answer to their modification request, hi Rliode 
Island, bankruptcy court loss mitigation has already saved 100 homes, and it has the potential to 
help saves thousands more across the counhy. I believe that makes it w'ortli supporting. Once 
again, thank you for the opportunity to take part in this hearing, and I commend your good w'ork. 


2 


Mr. Johnson. Thank you, Senator, and thank you for the legisla- 
tion that you just mentioned. I think it is good in the judicial 
States, foreclosure judicial States, but there are about half the 
States almost that suffer from a nonjudicial foreclosure process. 
States like Georgia where I hail from, and I am looking at some 
legislative solutions to that process, some Federal legislative solu- 



119 


tions to that process which should measure up well with your ef- 
forts. 

Senator Whitehouse. Mr. Chairman, in States like yours and 
mine, which are both nonjudicial foreclosure States, the ability of 
a homeowner to seek bankruptcy protection in order to stop fore- 
closure and resolve all of their credit issues at the same time is fa- 
cilitated by this proposal. So it is effective in Rhode Island and I 
think it would be effective in Georgia as well, notwithstanding the 
nonjudicial nature of your foreclosure process. 

Mr. Johnson. Certainly. Thank you. 

Senator Whitehouse. Thank you. Chairman. Thank you all for 
your courtesy. 

Mr. Johnson. Thank you for your appearance today. 

And now we will call for the second panel. I will now recognize 
myself for a brief statement. 

These are challenging times in America, our economy is strug- 
gling during an unprecedented housing crisis, a crisis that is dev- 
astating American families and neighborhoods. Too many constitu- 
ents have contacted my district offices for assistance because the 
banks and lenders are losing their paperwork, failing to respond to 
their request for modifications and failing to return their calls in 
a timely manner. Their lives are disrupted and turned upside down 
by the foreclosure process and by the shoddy procedures. The same 
bankers who came to Congress with hat in hand demanding a bail- 
out, the same bankers who couldn’t have survived without welfare 
paid for by the American taxpayer, those same bankers have no 
problem summarily throwing the American taxpayer out of her 
home without due process, without accurate documents, without re- 
gard for the human beings whose lives are being affected. 

So I submit to our friends from the financial industry that our 
constituents, your borrowers, are living human beings. They have 
blood flowing through their veins, they care about their loved ones, 
they agonize over what will happen to their homes. They need to 
be treated fairly during the foreclosure process. 

One of the major causes of this foreclosure crisis was greed. 
Banks and lending institutions, fueled by greed, put everyday hard- 
working Americans into mortgages that they knew that these 
Americans could not afford. In last week’s foreclosure hearing we 
had a chance to hear from a judge who has presided over more 
than 1,000 mortgage cases. He testified to the many problems he 
sees time and time again in his courtroom, including situations 
where lawyers representing mortgagors failed to know who they 
represented, or they lacked the underlying note evidencing their 
entitlement to seek foreclosure, or they failed to establish the legal 
chain of title establishing the standing of their client mortgagors, 
and they submitted to the court in some cases false affidavits at- 
testing to the ownership and the note of the mortgage. 

Recent press reports indicate that lenders have executed fore- 
closures recklessly and without adequate review of relevant docu- 
ments. The practice of robo-signing, where lenders sign foreclosure 
documents with little or no knowledge of the contents of the docu- 
ments, calls into question the legitimacy of hundreds of thousands 
of foreclosures. Other problems rampant in the foreclosure process 
range from the imposition and collection of improper fees, poor un- 



120 


derwriting and improper servicing, not to mention the pervasive 
predatory lending that set the stage for the crisis in the first place. 

These are serious issues that do not appear to be isolated inci- 
dents, but rather a systematic problem within the foreclosure in- 
dustry. 

Since 2007, Americans have lost nearly 6 million homes to this 
foreclosure crisis. This issue is of the utmost importance to me be- 
cause my home State of Georgia ranks seventh in the Nation for 
foreclosures. Foreclosure and predatory lending issues have always 
been crucial issues to me. As a Dekalb County commissioner, I au- 
thored and passed Georgia’s first approved ordinance against pred- 
atory lending which State legislators later used as a guide in pass- 
ing a statewide law. 

As foreclosures continued to surge, we must ask if mortgage 
servicers are doing all that they can to provide sustainable alter- 
natives to foreclosure. How can we ensure that servicers have the 
training, personnel support, and judgment to properly service loans 
and interact with customers to avoid foreclosure? This is a time of 
economic and financial instability, and at the very least families 
should be able to go to sleep at night knowing that they have a 
place to lay their heads. Unfortunately, many Americans live under 
the shadow of imminent foreclosure and struggle against servicers 
who are often incompetent and disinterested. 

I thank the Chairman for all of his hard work on this Committee 
during this Congress and for taking the time to hold this hearing. 
The Chairman had to depart for another very important meeting, 
and he asked me to chair this full Committee today. 

I look forward to hearing from the witnesses today, and I yield 
back the balance of my time and will now recognize the Ranking 
Member of the Judiciary Committee and soon to be Chairman, my 
friend. Congressman Lamar Smith from Texas. 

Mr. Smith. Thank you, Mr. Chairman. Mr. Chairman, I was in- 
terested in your opening statement because I didn’t realize what 
you had done in the Georgia legislature to help address this prob- 
lem and that is much appreciated, and I was glad to hear you say 
that a State law had been the result of your efforts. 

Mr. Chairman, let me thank the witnesses from the second panel 
at our last hearing for their patience and for coming back to testify 
this week. I regret we were unable to hear from you the last time 
but appreciate your effort to be here today. 

Errors in the foreclosure process are inexcusable and undermine 
the rule of law and the due process rights of borrowers. However, 
there does not appear to be any evidence of fraud or intent to mis- 
lead the courts. Rather, all indications are that the foreclosure doc- 
umentation problems are limited to unacceptable, but curable docu- 
mentation defects. 

While the foreclosure documentation issues are troubling, and 
mortgage servicers undoubtedly will be held accountable for their 
mistakes, the larger problem is how to end the foreclosure crisis. 
We seem to be caught in an economic paradox between job creation 
and recovery of the housing sector. 

As Peter Lawson of the American Enterprise Institute has ob- 
served, “The housing industry, which amounts to almost one-sixth 
of the U.S. economy, has always been the economic sector that led 



121 


the United States out of recessions.” But at the same time it ap- 
pears that jobs are what we need for the housing sector to recover. 
Analysts at Moody’s have noted that without jobs fewer households 
are created and the existing households are unable to afford to buy 
a home. 

Unemployment, coupled with a large number of borrowers who 
are under water on their mortgages and an overall lack of con- 
sumer confidence, is creating a drag on the housing sector. And by 
all indications a weak housing sector is constraining the broader 
economy. So while the mortgage documentation problems that are 
the genesis of this hearing are important, the more important ques- 
tion is how do we get the housing sector moving again? 

At this point Obama administration programs like the Home Af- 
fordable Modification Program has succeeded in spending large 
sums of taxpayer money, but have had little success at stemming 
foreclosures. Hopefully as we move forward we can establish more 
effective policies for both job creation and recovery of the housing 
sector. 

Mr. Chairman, I look forward to the witnesses’ testimony and I 
yield back the balance of my time. 

Mr. Johnson. Thank you. Congressman. 

In the interest of proceeding to our witnesses and mindful of our 
busy schedules, I ask that other Members submit their statements 
for the record. Without objection, other Members’ opening state- 
ments will be included in the record and without objection, all 
Members will have 5 legislative days to submit opening statements 
for inclusion in the record. Without objection, the Chair will be au- 
thorized to declare a recess of the hearing at any point. 

I will now introduce our second panel. First is Mr. James 
Kowalski, Jr. He specializes in consumer protection litigation. Prior 
to entering private practice, Mr. Kowalski served as an assistant 
State attorney for Florida from 1989 to 1996, where he prosecuted 
public corruption, sex crimes, and homicides. He is a graduate of 
the University of California at Berkeley and the University of San 
Francisco School of Law. Mr. Kowalski also brings the perspective 
of having practiced in Florida, one of the States like my State of 
Georgia which has been hardest hit by the ongoing foreclosure cri- 
sis. He has also been on the forefront of the foreclosure documenta- 
tion scandal. Welcome, sir. 

Next is Mr. Thomas Cox. He has been a lawyer for more than 
40 years and currently is a volunteer program coordinator at the 
Maine Attorneys Savings Homes Project. The project is jointly 
sponsored by the Pine Tree Legal Assistance and its affiliated 
Maine Volunteer Lawyers Project. Mr. Cox brings to this hearing 
a unique perspective. While he currently represents homeowners 
facing foreclosure, he used to represent lenders seeking to foreclose. 
I think his perspective will be particularly interesting on the fore- 
closure documentation issues that we are considering here today. 
Mr. Cox received his AB from Colby College and his JD from Bos- 
ton University. Welcome, sir. 

Our next witness, Ms. Sandra Hines, has been detained, a flight 
delay I believe, so she may or may not get here before we conclude 
this hearing. 



122 


Next I would like to welcome Vanessa Fluker. She is an attorney 
who practices in Detroit, which some consider to be one of the Na- 
tion’s home foreclosure epicenters. Nearly every day she is in court 
helping those at risk losing their homes to foreclosure, and she is 
a leader of the Moratorium, now Coalition to Stop Foreclosures, 
Evictions and Utility Shut-offs. 

Thank you for being here, ma’am. Over the years Ms. Fluker and 
Chairman Conyers have worked very hard to have the State of 
Michigan institute a statewide foreclosure moratorium, and we will 
want to hear her explain to us why such a moratorium is needed. 
Ms. Fluker received her joint MA/JD degree in 2002 from the WSU 
Law School and the Department of Political Science. 

Our next witness is Tom Deutsch. Mr. Deutsch, excuse me, sir, 
is the Executive Director of the American Securitization Forum. 
Before obtaining that position he practiced law in the capital mar- 
kets department of Cadwalader, Wickersham & Taft. He earned his 
BA from Washington University in St. Louis and his JD from the 
University of Pennsylvania. Welcome, sir. 

Our final witness is Mr. Christopher Peterson, who is an Asso- 
ciate Dean for Academic Affairs and a professor of law at the 
Quinney College of Law, University of Utah. He has lobbied on con- 
sumer lending policy and testified on consumer finance before the 
U.S. Senate Banking Committee and the White House. He has a 
BS, an HBA, and a JD from the University of Utah. It won’t come 
as a surprise, but Professor Peterson has strongly divergent views 
from Mr. Deutsch on the impact of securitization on real property 
law. So we are looking forward to an erudite discussion from both 
of these experts. 

Now, Mr. Kowalski, would you please begin? 

TESTIMONY OF JAMES A. KOWALSKI, JR., ESQUIRE, LAW 
OFFICES OF JAMES A. KOWALSKI, JR., PL, JACKSONVILLE, FL 

Mr. Kowalski. Representative Johnson, Members of the Com- 
mittee, thank you for inviting us here today to testify on issues re- 
lating to the foreclosure crisis facing our country. I am an attorney 
practicing in Florida and a member of the National Association of 
Consumer Advocates. I would like to start my testimony by making 
a few clear points in follow up to the regulators’ testimony during 
your last hearing. 

First, the manufacturer of significant documents for submission 
to the courts is not a recent practice by the servicing industry. It 
is widespread and longstanding. The use of robo-signers, more ac- 
curately called robo perjurers, where an individual submits testi- 
mony under oath in the form of an affidavit, an affidavit relied 
upon as the primary evidence of the court in evicting the home- 
owner, where the individual has no personal knowledge whatsoever 
regarding the substance of their testimony, is not a recent practice 
by the servicing industry. These abuses of the judicial system are 
not the work of a few individuals or a rogue, outsourced unit of the 
servicer. The systemic use of manufactured documents and false af- 
fidavits is a business model. It has been the business model of the 
servicing industry for years. 

I have been an attorney in Florida for 20 years, starting as a as- 
sistant State attorney in the Fourth Judicial Circuit in 1989. I 



123 


served as the division chief of the Public Corruption Unit in the 
County Court, and as the senior trial attorney in the Special As- 
sault Unit in the Repeat Offender Court Unit. I was also a memher 
of the on-call homicide team, and I put three men on Florida’s 
death row. 

After leaving the State attorney’s office in 1996, I entered civil 
practice and began representing individuals in wron^ul debt col- 
lections and wrongful mortgage foreclosure cases in the early 
2000’s. I took my first robo signer or robo perjurer deposition in 
2003. 

As a result of almost a decade of handling wrongful foreclosure 
matters, I have reached five general conclusions. First, the serv- 
icing industry as a business model is irretrievably broken, and the 
application of servicing industry procedures to loan modifications 
or, to that matter, to any issues whatsoever with the foreclosure 
itself has been counterproductive. The clearest evidence of this is 
in the dual track process where a borrower who might not be be- 
hind at all, who calls his or her servicer to inquire about a loan 
modification or wrongly force placed coverage or a posting error by 
the servicer will often end up months down the road with one unit 
of the servicer continuing to deal with what by then is a horrific 
customers relations issue, while another unit of the same servicer 
proceeds blindly and mindlessly with foreclosure. 

The various units of the servicer do not communicate, are not 
permitted to communicate, and do not even have access to each 
other’s computer systems. At every turn the goal appears to be the 
pursuit, churning, and diverting of servicer fees. Examples of ev- 
erything I will testify about are in the exhibits that I filed with my 
testimony. 

Number two, affidavits and assignments of mortgage filed in 
mortgage foreclosure cases are for the most part worthless. The 
overwhelming evidence from Florida and around the country con- 
sists of proof that affidavits are completed by persons who not only 
do not read the file, they do not even have access to the critical por- 
tions of the file. 

It is also now evident that assignments are created after the fact 
in an attempt to show a chain of ownership, and many critical facts 
in the assignment such as the date or the assertion of an equitable 
transfer are not based on any evidence at all. For example, the 
date often used by the assignment is the date the file was trans- 
ferred to the law firm, not the date the servicer purportedly took 
ownership or the trust purportedly took ownership. 

I listened to a Federal district judge last month describe affida- 
vits as all surface and no anchor. I have never taken the deposition 
of an affiant or read or reviewed a deposition taken by another law- 
yer in more than 7 years of this practice where the affidavit itself 
was wholly truthful. 

Number three, many of the mill law firms are overwhelmed by 
the internal structures and by demands placed on them by the in- 
dustry, and as a practical effect have complied with whatever they 
have been asked to do. This includes law firm employees signing 
affidavits on behalf of their clients where a law firm employee had 
no personal knowledge and was acting outside the scope of what- 
ever authority they might have. 



124 


Number four, Legal Aid groups and HUD counselors are an inte- 
gral part of the solution and must be better funded to provide sup- 
port at all levels. 

Number five, local counsel unfortunately has no connection to 
these issues. 

In conclusion, I would respectfully suggest that the major 
servicers should not be believed when they assert that borrowers 
are deadbeats and that speeding up the process and rubber-stamp- 
ing MERS is the course we should follow. At some point we simply 
have to stop accepting the ever changing excuses offered by the 
servicing industry. If we are to restore trust in our institutions, we 
have to start at some point to reform the servicing industry. The 
dual track concept needs to end immediately. Fannie and Freddie 
need to be incentivized to be part of the solution. MERS needs to 
end. The servicers do not need a truth bailout to go along with a 
financial bailout we have given them as a reward for truly abysmal 
business practices. And Legal Aid groups and HUD counselors have 
to be properly funded. 

Mr. Johnson. Mr. Kowalski, I am going to ask that you sum up 
at this time. I neglected to mention to the witnesses that each of 
you have 5 minutes, as indicated on the contraption in front of you. 
There is a green, a red and a yellow light. The green light cuts off 
after 4 minutes, it goes to yellow, and then it goes to red. So if you 
would, sir, please. 

Mr. Kowalski. Lawyers will always say I just have a few more 
points, but I do just have a few more points. As members of the 
National Association of Consumer Advocates, we would appreciate 
the opportunity to form a bipartisan partnership to confer as regu- 
larly as you want with the Members of this Committee, with your 
staff, with OCC, with Treasury and with others to work through 
the short and long-term solutions to these issues. But at each step 
the interests of American homeowners need to be considered first. 

Thank you. 

[The prepared statement of Mr. Kowalski follows:] 



125 


Prepared Statement of James A. Kowalski, Jr. 


Law Offices of James A. Kowalski, Jr., PL 

Ml mhi:r i>r tiil. B.ar in Fi.oriiia asp Calii-orm.^ 


Written Testimony of 

James A. Kowalski, Jr., Esquire 
Law Offices of James A. Kowalski, Jr., PL 
Jacksonville, FL 

Before the 

Committee Ou The Judiciary 
United States House of Representatives 

“Foreclosed Justice: Causes and Effects of the Foreclosure Crisis” 

December 2, 2010 
10:00 a.m. 


1 2627 San Jose Boulevard, Suits 203, Jacksonvii.lk, PL .32223 
i! I: 904.268.1146 i 9C4.26R.1.342 inl- i 


I.: KOWALSKI.LA«'©MAC.COM 





126 


Testimony 

Thank you for the opportunity to present testimony on the causes and effects of 
the foreclosure crisis. As an attorney handling consumer litigation cases in Florida, I 
have had a front-row seat for much of the past decade, as Florida has been particularly 
affected by the overall economic crisis, with specific harm coming to tlie state’s citizens 
in the form of overwhelmingly liigli mortgage foreclosure rates. 

These remarks are drawn in part from testimony I provided in July 2009 to the 
Florida Supreme Court Task Force on Residential Mortgage Foreclosure Cases, and from 
prior seminars I have taught in this field. My testimony has not changed because the 
actions of the mortgage servicing industry have not changed - for years. Tire 
manufacture of documents in court, the use of robo-signers, the complete lack of proper 
documentation required by the Pooling and Servicing Agreements, the UCC and New 
York trast law - all of this has been standard industry practice for most of the past 
decade. 


First, let me make clear that I am not here to demonize the servicing industry and 
their mill law firms. I do not see the securitized tmsts and their mill law firms as demons 
— I see them as an entirely new legal vehicle for separating homeowners from their 
homes, with little or no resemblance to the normal attomcy-clicnt relationship wc arc 
familial- with, and little or no sy stemized review of individual cases. These are not our 
grandfather’s banks, and the legal product that has been introduced into our state court 
systems are not like anjdhing we have seen before. 

The system that has been in place for years, with the mill firms being merely an 
extension of contractors to the servicing industry for secui'itized loans, represents a facial 
violation of many of the ethical rules which govern attorneys, including Rule 4-2.1, Rules 
Regulating the Florida Bar, which requires an attorney to exercise “independent 
professional judgment.” Pleadings are routinely drafted by the client (the servicer, not 
the plaintiff) with no little or no meaningful review by the attorney. 

These actions are forced, in part, by the timing pressures imposed by the servicing 
industry. In 2004, Fidelity National Information Services, a Jacksonville-based company 
which provides much of the software interface technology used by mill firms and 
servicers, implemented an “Attorney Performance Report” (APR). The APR is designed 
to reward liigh-scoring attorneys, who are ranked on tlie basis of a number of timing 
factors. The faster the case is shoved through the foreclosure process, the higher the 
score. Firms are then color coded as “green light”, “yellow light” and “red light,” witli 
the slower “red light” firms receiving less and less business. 

The focus on speed is part of the business model for the servicers. As those of us 
who have litigated these cases for years now, and as all of us now know as a result of the 
robo-signing scandals, most of the servicers use “Signing Officers” - rows of individuals 
who sit before reams of documents prepared by others, with not even a modest winlc at 
the business records exception to the hearsay rule, and who sign the documents only to 


1 



127 


have (he document transported across the business campus to rows of notaries, who attest 
to the signatures without ever complying witli the basics of their state’s notary laws. 

Some of the mill firms now employ their own “Signing Officers” - individuals 
who will sign Assignments of Mortgage on behalf of the owners of the pool, supposedly 
authorized by the servicer pursuant to the Pooling and Servicing Agreement which 
applie.s to the particular securitized trust. The documents are prepared entirely by the 
servicer. 

On occasion, the law firm employees also sign the Affidavits in support of 
motions for sunnnary judgment filed by the law fhins - here, the lawyer’s office staff 
becomes ike material witness for the lawyer’s client. 

Right or wrong, you can see from this system there is no real separation betw'een 
the servicers and the mill firms. The law firm employee is signing documents prepared 
by tire client / servicer (who also has not independently reviewed tire substance contained 
therein). I have provided numerous examples of this in the attached Exhibits. 

The most significant problem which arises as a result of this standard business 
model is the “dual track” system, where homeowners dealing with one unit of a servicer 
on a loan modification will quickly end up in a foreclosure handled by another unit of the 
same servicer - units wlrich not only do not coordmate their efforts, but which impose 
firewalls between themselves, where an employee of one unit cannot even access the 
computer database used by' another unit - even where the information is critical and could 
either (1) prevent a foreclosure or (2) demonstrate that the foreclosure was WTongly filed 
in the first place. 

The use of robo-signers and the dual track mechanism means simply this: at 
a very basic level, the servicer cannot be relied upon to confirm the veracity of the 
default. Put another way, if there is a problem with the paperwork, there is a 
problem with the foreclosure. 

None of this is new -judges around the country have been imposing sanctions for 
this conduct for years, and the media has been reporting on these issues for years. 

I raise these issues to make this point - the core problem with the 
development of the securitized trusts, the invention of the servicing industry, and 
the creation of the mill firm .system, is that all problems, concerns or issues raised by 
the borrower / homeowner / defendants are not only ignored, but that the system 
provides incentives for this practice. This is the single biggest cause of the foreclosure 
crisis, and we have seen firsthand the effects, in Florida and throughout the country, on 
families (particularly children), on small businesses, on the economy in general. 

A study released last year by the Federal Reserve Bank of Boston makes this 
clear: Mortgage lenders don’t try to rework most home loans held by borrow'ers facing 
foreclosure beeause it would probably mean losing money. We knew ahead of time, 


2 



128 


based on these findings and prior studies, that the Obama administration’s major effort to 
solve the foreclosure crisis by giving tbe lending industry $75 billion to revtiite 
delinquent loans to more affordable levels was not likely to work. One of the study’s 
coauthors, Boston Fed senior economist Paul S. Willen, said the government would be 
better off giving the money directly to struggling borrowers to help them with their 
payments, rather than to lenders that are averse to w'orking out the troubled loans. 

The Fed’s study found that only 3 percent of seriously delinquent borrowers - 
those more than 60 days behind - had their loans modified to lower monthly payments; 
about 5.5 percent received loan modifications that did not result in lower payments. The 
study focused on 665,410 loans that were originated between 2005 and 2007 and 
subsequently became seriously delinquent. It also followed about 150,000 borrowers for 
six months after they received help, through the end of 2008. 

“A lot of people you give assistance to would default either way or won’t default 
cither way,” Willen said. “[The servicers] are trying to maximize profits, and at tliis 
point maxhnizing profits does not mean modifying loans.” 

We also see this at the state level, with many servicers and lenders who have 
signed on to receive T’ARP funds, and are therefore contractually obligated to stay 
foreclosure lawsuits and comply with the Treasury’s HAMP and HARP programs, 
denying to borrowers that they even participate in tire programs or have received federal 
money. We now know that sendcing fees have been pursued to tire detriment of both the 
investors and the homeowners. 

As a result of my years of first-hand experience, I have reached 5 major 
conclusions, outlined below, with supporting documentation as to each: 

1. The servicing industry as a business model is irretrievably broken, 
and the application of the servicing industry procedures to loan modifications 
sought under HAMP and other programs has been counterproductive. The clearest 
evidence of this is in the “dual track” process. 

Under the “dual track” system, a borrower who might not be behind at all, and 
who calls Ure servicer to inquire about a loan modification, i.s often told they need to miss 
three payments in order to be considered for a loan modification. After the first payment 
is missed, two things immediately happen: (a) an initial default letter is computer- 
generated; and (b) the missed payment is reported to the credit bureaus. When the 
bon’ower calls after receiving the letter, they are told that tliis is expected, and tliey 
should proceed to miss the next tw'o payments. The same thing happens for payments 2 
and 3; at 9 1 days the borrower is in default and the file is sent to the default loan 
department, and the referral to the mill law firm starts. At that point, for the first time, 
the borrower or a HUD counselor is permitted to submit financial records to the loan 
modification departnienl to seek a modification, but the borrower’s financial position has 
already worsened because of the credit reporting. From this point forward, the borrower 
is on “dual tracks” and the foreclosure proceeds with one department at the same time the 


3 



129 


loan modification is considered by another department. The two departments do not, and 
are often not permitted to, communicate. See, Exhibits 2 and 7. 

Under this system, when the Affidavit of Indebtedness is created, the so-called 
“robo-signer” looks at a summary of the payment histoiy only (no otlier documents 
whatsoever) and is never pennitted to review tlie actual contact history containing the 
instructions to the borrower. Exhibit 2. 

2. Affidavits and Assignments of Mortgage filed in mortgage foreclosure 
cases are, for the most part, worthless. The overwhelming evidence from Florida and 
around the countiy consists of proof that Affidavits are c ompleted by individuals who not 
only do not read the file; they do not even have access to the critical portions of the loan 
file. Those who review a summary of the payment screen, for example, are not even 
permitted to review the customer contact screen, which should include reference to 
conversations with tlie bon'Owers. See, Exhibits 2-6 and 8. 

It is now evident that Assignments are also created after the fact in an attempt to 
demonstrate a chain of ownership, and that many critical facts in the Assignments, such 
as the date of the Assignment or the assertion of an equitable transfer, arc not based on 
any evidence at all. (For example, the date often used for the Assignment is the date the 
file is transfeixed to tlie law firm, not the date the Trust purportedly took ownership of the 
loan.) 


I listened to a Federal District Judge last month describe Affidavits as “all surface 
and no anchor.” I have never taken a deposition of an Affiant, or read or reviewed a 
deposition taken by another lawyer, in more tlian 7 years of this practice, where the 
Affidavit itself was wholly truthful. In the GMAC deposition that has made national 
news, for example, possibly the only fully truthful statement in the entire document was 
the name of the Affiant herself. See, Exhibit 8. 

3. Many of the mill law firms are overwhelmed by their internal 
structures and by demands placed on them by the industry and, as a practical effect, 
have complied with whatever they have been asked to do. This applies particularly to 
the Law Offices of David J. Stem, as clearly demonstrated by the recent depositions 
taken by the Florida Attorney General’s Office, and includes law' firm employees acting 
as affiants and signatories on Affidavits w'here the law fimi employee had no personal 
know'ledge and was acting outside the scope of whatever authority they might have had. 
See, Exhibit 6. 

4. Legal Aid groups and HUD counselors are an integral part of the 
solution, and must be better funded to provide support at all levels. For example, the 
Jacksonville Area Legal Aid (JALA) lawj'ers carefully review' the files, and, for the most 
part, when a JALA lawyer is coming to courf it is an indication that there is a solution at 
the end of the case (for example, the borrower should qualify for a loan modification but 
that portion of the fde is in the “dual-track” morass.) HUD counselors can also provide 
invaluable information on HAMP-related solutions, and both legal sers'ices and HUD 


4 



130 


counselors iiiusl. be properly funded lo provide assistance in litigation. Exhibit 1 is an 
example of a borrower who was fortunate to come into contact with her local Legal Aid, 
which is providing assistance in a case in which two foreclosiues filed by two different 
securitized trusts are pending at the same time. 

5. Local counsel has no connection to these issues whatsoever. Tliey do 
not participate in the creation of the Affidavits or Assignments, know nothing about the 
file other than what they are told by the staff of the mill law firm, and usually do not have 
the opportunity to review the file until immediately before the hearing. They do not have 
the opportunity to conduct any independent investigation whatsoever, do not sign 
pleadings, and are therefore outside the purview of Rule 2.515(a), Florida Rules of 
Judicial Procedure: “The signature of an attorney shall constitute a certificate by the 
attorney that the attorney has read the pleading or odier paper; that, to the best of the 
attorney’s knowledge, information and belief there is good ground to support it. . 

Conclusion 


So - what to do, given the business practices of the industry, the servicing abuses 
outlined above, and the fact that the mill firm system provides no meaningful checks and 
balances to the foreclosure process sought by the servicer? 

First, I would respeclfully suggest that lire major servicers should not be believed 
when they suggest that all borrowers are deadbeats, and speeding up the process, and 
rubber-stamping the abomination that is MERS, should be the course w'e follow. At 
some point, we simply have to stop accepting the ever-changing excuses offered by the 
servicing industry for what appears to be a completely failed business model. 

Why should we continue to place trust in an industry' that has clearly 
resorted to the wholesale manufacture of critical documents as a husiness practice? 

If we are to restore trust in oui institutions, including in the judicial process itself, 
we have to start, at some point, to reform the servicing industry. The “dual track” 
concept needs to end immediately. Farmie and Freddie need to be mcentivized to be part 
of the reform process, not part of tlie problem. MERS needs to end, as the servicers do 
not need a “truth bailout” to go along with the massive financial gift we have given them 
as a reward for tnily abysmal business practices. A careful inquiry, point-by-point and 
document-by-document, needs to be started so diat investors can have faith in the fact 
tliat they actually own what tliey think tliey own. 

At each step, the interests of American homeowners need to be considered fust. 

Thank you for allowing me the opportunity' to share tliese comments. 


5 



131 


EXHIBIT 1: 


EXHIBIT 2: 


EXHIBIT 3: 


EXHIBIT 4: 


EXHIBIT 5: 


EXHIBIT 6: 


TABLE OF CONTENTS 


Example of two trustees (US Bank and Wells Fargo Bank) suing at tire 
same time on the same note to foreclose on the same house. As you can 
see from the attached Complaints, both US Bank Trust National 
Association, as Trustee of the Sequoia Funding Trust, and Wells Fargo 
Bank, NA, as Certificate Trustee for VNT Trust Series 2010-1, claim to 
own the note in a case currently pending in Duval County Circuit Court. 
See also, Rusealleda v. HSBC Bank USA, 43 So.3d 947 (Fla. 3d DCA 
2010) (HSBC and American Home Mortgage simultaneously attempted to 
foreclose the same mortgage). 

Extensive Punitives Order describing the discomiect between the Affiant 
and the actual facts of the case, in which the borrowers were not only not 
in default, the .servicer had actually lowered their payments to compensate 
for wrongly forced-placed coverage. The affiant, whose deposition was 
taken in 2003, confirmed she would not have executed her affidavit if she 
had been pennilted to review the complete loan histoiy. 

Example of affidavit purporting to show an equitable transfer - the Affiant 
testified that the Affidavit itself was drafted by attorneys and did not 
include facts with which he was familiar. Summaiy Judgment entered for 
Defendants, who unwittingly had purchased a oondciimed house as part of 
a fraud scheme. 

Example of mill firm and servicer submitting inconsistent facts and 
exhibits to the Complaints to, as the Court put it, change “. . .as needed to 
benefit the Plaintiff.” This case also liighlights the difference betw'een 
what die mill film is told by the servicer and what the servicer submits to 
the Court - the mill lawj'cr told the Court that the original documents were 
not received from the servicer until months after the Complaint was filed 
(and until after the first Motion to Dismiss), (see page 1 1 of the transcript) 
wliile the servicer testified via Affidavit, after die case was dismissed with 
prejudice, diat the file documents w'eie forwarded shortly after the case 
was sent to the mill firm (Affidavit, pages 2-3.) 

Example of numerous inconsistent Assignments, and of the Bank taking 
inconsistent positions before a trial Court and an appellate Couif. Order 
allowing punitive damages sets forth fact pattern in detail. 

Assignment of Mortgage signed by office manager for David Stern’s 
office, as “Assistant Secretary” of MERS, together with the actual Power 
of Attorney, wliieh specifically provides die Assistant Secretary is limited 
to signing Affidavits (not Assignments). 


1 



132 


EXHIBIT 7: 


EXHIBIT 8: 


Excerpt of BOA deposition, in which the BOA employee who was 
charged with testifying, with knowledge, about a BOA credit disability 
plan, confirmed he could not find out anything regarding the BOA credit 
disabilify plan. 

The GMAC mess. 


2 



133 


EXHIBIT 1 


WELLS FARGO BANK. 
CERTIFICATE TRUSTEE 
TRUST SERIES 201 0-1, 

I PlainTiff, 


JACQUELINE/P. YULEE; 
CFlASEaiOj\ffiOWNERS ASSOCIATION, 
INC.; \ MERCEDES HOMES, INC.; 
UNKNOl^ SPOUSE OF JACQUajNB 
P, YULEE,\jNKNOWN TENANT (S); IN 
POSSESSION OF THH SUBJECT 
PROPERTY, 

Defendants. 


N.A., AS 
FOR VNT 



IN THE CIRCUIT COURT OF THE 
4TH JUDICIAL aRCUIT, IN AND FOR 
DUVAL COUNTY. FLORIDA 
CIVIL DIVISION 


CASE NO.: 

lb- 


on] f 






COMPLAINT 

The Plaintiff, WELLS FARGO BANK, N.A., AS CERTIFICATE TRUSTEE FOR VNT 
TRUST SERIES 2010-1, sues the Defendants named in the caption hereof and alkies: 


COUNT 1 


1 . This is at action to foreclose a mortgage on real properly in DUVAL Coitoc)', Florida. 

2 . On October 31, 2003, JACQUELINE P. YULEE executed and delivered a promisRorj’ note and 
Purchase Mons)' Mortgage sectiriitg pc^ment ofibesamc to WELLS FARGO HOME 
MORT GAGE, INC, which mortgage was recorded in the Official Records Book 11504, Page 
W2,ofthe Public Records of DUVAL County, Florida and which mor^ged theproperiy 
described therein, then owned by and in possession of said mortgagor. Said mortgage was 
subsequently assigned to WELLS FARGO BANK, NjL, AS CERTIFICATE TRUSTEE FOR 
VN'T TRUST SERIES 2010-1. A copy of the mor^^e and assignment iffe attached hereto and 
made apart hereof. 

3. PJaintifT is the owner of said note. 

4. Defcndanl(s), JACQUELINE P. YULEE, OTra(s)thcpropeity. 

5. There has beeo a default underlhe note and mortgage held by Plaintiffin that the payment due 
February 01, 2007 and all subsequentp^mentshavenot been made. Plaintiff declares the full 
amount due under Che note and mortgage to be now due. 


10-17854 



6. All conriiticuis precedent !0 the fifing of this aetkn has been perfoimed or has occurred. 

7, TJierc is now due. owing and unpaid to the Plaintiff as of the dais of the filing of this complaint 
die following amounts on principal of said note and mortgage: impaid principd 

balance: $ 206,811.90, plus inlcrsst, escrow, title search expenses for ascertaining necessary 
parlies to this suit, title search, title exam, filing fee, and attorneys fees aud costs. 

S- Plaintiffhas obligated itself to the und^'signed attorneys a reasonable fee for their services 

lierein, Pursuant to the loan dxutaenls Plaintiff is entitled to an award of attorneys fees. 

9. Defendants, as UNKNOWN TENANTfS), in possession of flie subject property, may claim 
some interest in or Hen upon the subject proper^ arising from being in actual possession of same, 
but interest, if any, is subject and infoior to the lien of PlainttlTs mortgage. 

10. The Defendant, BRANDON CHASE HOMEOWNERS A.SSOCIATION, INC. may claim 
some interest in or lisnupondiesiibjecrpropeny by virtue of Claim of Lien, which is recorded al 
Official Records Book 14049. Page 1492 of the Public Records of DUVAL County. Said interest, 
If aay, is subject and inferior to the lien ofPlaintifTs mortgage. Additionally the Defeiidaot, 
BRANDON CHASE HOMEOWNERS ASSOCIATION, INC. may claim some inlcrst in or 
lien upcm the subject property' by virtue of any assessments pursuant to FLSatuie 720.3085. 

11. The Defendant. MERCEDES HOMES, INC. may claim some interest in or lien upon the subject 
property by virtue of ANV POSSIBLE INTEREST PURSUANT TO LACK OF AFFIDAVIT 
OR RESOLUTION AUTHORIZING EXECUTOR TO SIGN FOR MERCEDES HOMES, 
INC., which is recorded at OSiciaJ Records Book 1 1504, Page 861 of 4e Public Records of 
DITVAL County. Said interest, if any, is subject and inferior to the lien of Plaintiffs mortgage, 

12. The Defendant. UNKNOWN SPOUSE OF JACQUELLNE F. YULEE may claim some interest 
in or lien upon the subject properly by virtue of Aay possible Homestead Interest. Said interest, 
if any. is subject and inferior to the lien of Plaintiff’s mortgage. 


WHEREFORE, Plaintiff prays as follows: 

(a.) That this Court will takejurisdictionofthiscmise.lfacsubject matter and the parties hereto. 

(b.) Tnatthis Court ascertain and determine the sums of money due aol payable to the Plaintiff from 
the Defendairtjs), including without limitation principal, interest, advances, atloroey fees, and 
costs pursuant to llic loan documenQ. 

(c.) That the sum of money found to be due ss aforesaid be decreed by this Court to be a lien upon the 
lands described in Plaintiffs mortpige. 



135 


(d.) That sucli lien be foreclosed in accortaBce with the rules aqd established pracrice of this Conn, 
and upon feiiure of the Defendants to pa>> the amount of money found to be due by them to the 
Plaintiff, the said land be sold to satisfy cnirf ]iai. 

(eO nial this Court decree that the lien of the PitrintHT is snperiorto any and all right, title or interesi 
of the Defendants lierein or ary person or parties claiming by, thnnigh oninder them since the 
institution of this suit. 

(f.) Thatall right, titieorinterestofthcDeFendanlswany-personclaimiiigby, through or under them 
be forever barred and foreclosed. 

(g.) That this Court grants general relief in this cause as in its discretion mi|^ be just and proper 
including, but not limited to. a deficiency judgment, except where a discharge is applicable, if the 
proceeds of the sale are inauRidsnl to pay Plaintiffs claim. 


Law Offices of Marshall C-Waisoo, P.A. 
1800 N.W. 49™ Street, Smfe 120 


Fort Lauderdale, FL 33309 
Telephone: (954) 453-0365 



10-J7854 



136 


IN THE CJRCUrr COURT OF THE 
ATH JUDICIAL CiRCUTT, IN FOR 
DUVAL COUNTY, FLORIDA 
CDTL DIVISION 
CASE NO.: 


WELLS FARGO BANK, N.A., AS 
CERTIFICATE TRUSTEE FOR VNT 
TRUST SEianS 2010-1, 

Plaintiff, 


JACQUELINE P. YULEE, BRANDON 
CHASE HOMEOWNERS ASSOCIATION, 
INC; MERCEDES HOMES. INC.; 
UNKNOWN SPOUSE OF JACQUELINE 
P. YULEE; UNKNOYi'N TENANT (S); IN 
POSSESSION OF THE SUBJECT 
PROPERTY. 

Defendants. 


BORROWER CONTACT INFORMATION 


Name: JACQUELINE YULEE 
Address: 10909 BRANDON CHASE DRIVE 
JACKSONVILLE, FL 32219 
Pl.on.mmbsr; ( Ij | j) (, ■J.'] 


10-17854 



n 

Law OTFicE S 

OF Marshall C Watson 

1 800 NORTH WEST 45TII STREET, SJUTE fllM 
FORT LAODEKDALE, FLORIDA 33309 


Managing Altornej's 
Msishall C. Waiioii 
Ca^n A. Graham 

Associate Alluraeys 
Anionio Alonso 
Panioia Arango 
RiaSanksr Balram 
Laurents Barsky 
Anissa iioJiOl) 

Carolyn Dudnik 
Alhcrt Biiznik 
Jessica Cabrera 
Antonio Cunpos 
Tara Castilio 
Linda Chelvam 
Connie Deliss? 

Jenny Dziorney 
Ingrid Fadtl 
Penny Frassr 
Luke fynn 
Joanns GaJipauIt 
Michael Gelecy 
Cherri-AnnCiiannel' 
Barbara Gonzalez 
Koiy Greer 
Can Guner 
Shari N. Hines 
Giseilc Huguea 
Tenia Hunter 
VidaJasaiiis 


AMOCiateAilorarys 
Vanique Johnson 
JvnesKenat 
Onan Kowal 
Barrie Krumholz 
blintwhie 
Karen Marnzsan 
Sean A. Marshell 
Mark Mznrarrigo 


Ahsociaie Attoracys 
Jan McLinifhHi 
Sabine Michel-Zamot 
All Mnier 
Karen R. MorBUi 
Ttiseilla Moxam 
Arecb Nascer 
Em Nevius 

Wm. David Newman, Jr. 


Telephone (954) 453-0365 
Facsimile (954)771-6052 


Associate Attorneys 
Rehecea Niisen 
Cami L Pereyra 
Michael Phillips 
Frank Redcr 
Robin Reyes 
Krislen Kasenthal 
John Salcedo 
Franeuca San Roman 
Andrew Scolam 
Ryan Shipp 
Nsilini Singh 
Gail Sparks 
Karen A.Thanipjcn 
Noel Vandenhouten 
Lea Vandergrift" 
Biirtara Votdrcl! 
Angela Vinigiic 
Lynn Marie Vouil 
Soot! Weiss 
Dariar Williams 
Yuds Zamakis 


or Counsel 
John Walion 
David Tabb 
GewaeZaim 


Marrh 22 , 20)0 

NOTICE REQUIRED BY TKC FAIR DEBT COLLECTION PRACTICES ACT 
15 U.S.C. SECTION 1692, AS AMENDED 


RE: 


Propeny Addrfiss: 10909 BRANDON CHASE DRIVE JACKSONVILLE, FI 32219 


Owner JACQUELINE P. YOLEE 
Mortgagor: JACQUELINE P. YULEB 
Our File#: 10-17*54 


1 . The Plaintiff. WELLS FARGO BANK, N„A., AS CERTIFICATE TRUSTEE FOR VNT TRUST 
SERIES 2010-1, is Cic creditor to whom the debt is owed liioss individuals who are obligated 
under the proinissoiy note oad mortgage. 

2. The debtor may dispute the validity of this debt, or any portion thereof within 30 days of receipt 
of this Notice. If the debtor fails to dispute ibe debt within 30 days, ftie deb! will be assumed valid 
bythe creditor. 

3. If the debtor iioliSes the creditor's law firm in writing within 30 days from receipt of this notice 
that the defat, nr any portion thereof, is disputed, the creditor^ law firm will obiain verifioatinn of 
the debt, or a copy of a judgment and a copy' of the venfreation will be mailed to the debior by the 
creditor's Jaw Enn. Collection efforts, lesnlling in additiona] attcMiiey fees and costs however, will 
continue during this 30 day period until this office receives the writien request for verification. 



138 



If the creditor named herein is not the original creditor, and if fte dcbtcM- makes a written request 
to the creditors law firin within 50 days ofrece^ of this 1401300, the name and address of the 
original creditor will be mailed to the debtor by the creditor's law firm. Collection efforts, resulting 
in additional attamey fees and costs however, will continue during this 30 day period luitil this 
office receives the written request for Ihe name and address oflhs wiginai creditor. 

As of March 22. 2010, you owe a total amount ofS254,661.45 in certified fiinds. Because of 
interest, late charges, and other charges that may vary from day to (toy. the amount due on the day 
you pay may be greater. Hence, if you pay the aniount sb(wm above, an adjustment may be 
necessary alter we receive your certified funds, in \rfiicb event we will inform you before 
depositing die check f(3r collection. For further infijrraation, please call l-^00-‘14I-2438. 

Written requests pursuant to this notice should be addressed to FAIR DEBT COLLECTION 
CLERK, Marshall C. Watson, 

This communication is for the purpose ofcoUectingadebLand any informatiDn obtained from the 
debtor will be used for that purpose. 

The Law does not require me (the debt collectw) to wail until the end of the thirty-day period 
before suing you (the consumer) to colJea this debt. Once a lawsuit is comiasiKed, all judicial 
remedies will be zealously pursued and attorney fees and costs, which you may be responsible for, 
in wliole or in part, will be incurred. If, however, you request proof of rtie diiit or die name and 
address of the original creditor within the thirty>day pmod which begins with yourreceipt of this 
letter, the law requires me to suspend my efforts (through litigation or other\vise) to collect ±e 
debt until I mail the requested infonnation to you. Once the requested information is mailsd to you 
litigation efforts will resunie. 

Even though you are required to file a response to the lawsuit prior to dte thirty (30) days, your 
validation rights, as .set forth in this notice, shall not expire for tliirty (30) days. 



139 


EXHIBIT “A” 

NOTICE OF LEGAL ASSISTANCE 
REGARDING FORECLOSURE CASES 


You can lose the home you own os a result of the foreclosure papers served oq you with 
this Notice. 

However, you may be able to save your home. You probably will need a lawyer to help 
you. 

Volunteer lawyers are as'ailable through The Jacksonville Bar Association to review your 
situation to see whether your home can be saved. 

If you would like to get legal Iielp to save your home, you should call JacksDovllIe Area 
Legal Aid at 356-8371, Your situation will be reviewed and referred to a lawyer who 
will assist you if there is abasis for assistance. 

If you cannot afford a lawyer, you will not be charged any law'yer’s fees. If you can 
afford to pay reduced fees, but not regular fees, you may be charged only a reduced fee 
within your fmancial ability. 

You need to act right away if you want to try to save your home. If you delay, any rights 
you have may be lost. 


10-17854 



140 


Book 11S04 Pane S&a 



Relum 7o: 

WELLS FARGO HOME ^RTGAGE, INC. 
\aL documents ;«701-022 
i MINNESOTA D 

BLOl^INGTON, ^ 55435-5284 


This docurnm was prepared by; 

KEVIN 

WELLS f^GoWOME MORTGAGE, INC. 
2051 igU.EBREW1}RIVE #300 
BLOOMINGTON, M\ S5425. 


- sa-' 

wwa. CQUHn , 

ffiCCUHliC J S 

TOJSlFWd ♦ 

IBRlfiflK w: ST 4 

MTIWeiKI TW 4 127 


;sp»ee Atxwe Tliis Line For Recorang Data)- 


MORTGAGE onsseawe 


DERMTIONS 

Words ussd in multiple sectiwis of this document are Oeftned below and olher words are 
deftned in Sections 3, 11, 13, 18. 20 and 21. Certan rules regarding the usage of words used 
in this documenl are also provided in Section 16. 

(A) 'Security inilnimenr means ih'is document which is daled OCTOBER 31, 2P03 
logether with all Riders lo this document 

(B) "Borrower” is 

JACQUELINE P. YULEE. AN UNMARRIED PERSON 


Borrower is the morlgacor under this Security Instrument 

(C) "Lender" is WELLS FARGO HOME MORTGAGE, INC. 

Lender is e Corporation 

organized and existing under the laws of THE STATE OF CALIFORNIA 


FLORIDA - Sinple family • FannI* MwlFratlfli* Mae uniform MSTRMiaiT 


PORHOOfG 1/01 


SFLOl JUi- ll/02fD0 

oiv2) 



141 


Book 11504 Page 


Lender's address is 

?. 0. BOX 5137, DES MOINES, lA 5Q30&-5137 
Lender is the mortgagee under this Security Instnimenl. 

{D) "Note " means the promissary note signed by Borrower and dated OCTOBER 31, 2003 
The Note slates that Borrower owes Lender TWO HUNDRED THIRTEEN THOUSAND 
SEVEN HUNDRED FIFTY AND MO/100 _ Dollars 

S. $ plus interest Borrower has promised to pay this debt in regular 

Periodic Payments and to pay the debt in lull not later than NOVEMBER 1. 2033 

(E) "Property" means the property that is described below under the heading 'Transfer of 
Rights in the Property.' 

(F) "Lean" means the debt evidenced by the Mote, plus Interest, any prepayment charges 
end late charges due under the Note, and all sums due under this Security Jnstrumant, plus 
interest. 

(G) "Riders" means all Riders to this Security Instrument that are executed by Borrower, 
The following Riders are to be executed by Borrower (check box as applicable): 

I I Adjustable Rate Rider O Condominium Rider nsecond Heme Rider 

CD Balloon Rider Q Planned Unit Development Rider 0 1-4 Family Rider 

□ VA Rider I [ Biweektv Payment Rider GD Olherfs) (specify] 

Pr^yment Rider 

(Hi "Applicable Law" means all controlling applicable federal, stale and local statutes, 
regulations, ordinances and aOministralive rules and orders (lhal have the effect of law) as 
well as ali applicable final, non-appealabfe (udiciai opinions. 

(1) "Community Association Dues. Fees, arrd Assessments" means all dues, fees, 
assessments and other charges that are Imposed on Borrower or the Property by a 
condominium association, homeowners association or similar organization. 

(Jj "Electronic Funds Transfer" means any transfer of funds. o»ier than a tratrssetion 
originated by check, Orafl, or similar paper instrument which Is InitiateO through an 
electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, 
instruct, or authorize a linancial institution 1o debit or credit an account Such term includes, 
hut is not iimiled to. poinl-of-sale transfers, automated teller machine transacllDns, transfers 
initiated by lelephore, wire transfers, and automated clearinghouse transfers. 

(K) "Escrow Items' means those items that are described in Section 3. 

(L) "MiscellBtieeus Proceeds' means arty compensation, selttement award of damages, or 
proceeds paid by etiy third party (other thar» insurance proceeds paid under the coverages 
described In Section 5) fen (i) damage to. or destruction of. the Prc:^>eny: (li) condemnation 
or other taking of all or any pan of the Property: (•») ranveyance in lieu of condemnation; or 
(iv) misrepresentations of, or omissions as to. the value and/or condition of the Property. 

(M) "Mortgage Insurance" means insurance protecting Lender against the nonpayment of, 
□r default on, the Loan. 

(Nj "Periodic Payment" means the regularly schadoled amount due for (i) principal and 
interest under the Note, plus (ii) any amounts under Section 3 of this Security Instrument. 




Rtv liASm 


pact 2 of '-S 


FORM MID 



142 


Book ilSO* 


(O) "RESPA" means Jhe Real Estale SetOerr»et»t Procedures Act (12 U.S.C. Seclion 2B01 et 
seq.) and its implementinfl resulalian, Regulatbn X (24 CJ.R. Part 3500). as they ^ighl be 
amended from lime to time, or any additional or successor legisUtiop or regulation that 
governs the same subject matter. As used in Ibis Security Instrument. 'RESPA' refers to ail 
requiremenls and restrictions that are imposed in regard to a 'tederally related i^orlgage 
loan' even If the Loan does not qualify as a 'federafiy related mortgage loan' under RESPA. 

(P) "Suctesaw in Interest of Borrower' means any party that has taken liUe to the Proper^, 
whether or not that party has assumed Borrower's obligations under the Note and/or this 
Security Instrument. 

TRANSFER OF RIGHTS IN THE PRQPERTV 

This Security Instrument secures to Lender (i)the regaymani of die Loan, and all renewals, 
extensions and modifrcallans of the Nole; and (li) the performance of Borrower's convenants 
and agreements under this Security Instfumenl and the Note. For this purpose, Borrower 
does hereby mortgage, grant and convey to Lender, the tollowing described properly 
localecJ in the County of DUVAL 

[Type of Rocardins furiidioieoj [Name of Rctording Jwudieiica]; 

LEGAL DESCRIPTION IS ATTACHED HERETO AS SCHEDUJE "A" AND MADE A 
PART HEREOF, 


THIS IS A PURCHASE MONEY MORTGAGE, 


Parcel ID Number 

10909 BRANDON CHASE DRIVE 

JACKSONVILLE 

("Property Address'); 


which currently has the address of 
[StreetJ 

latyl. Florida 32218 [Zip Code] 


TOGETHER WITH all the improvements now or hereaher erected on the properly, and 
ail easements, appurtenances, and Jlidures now or hereafter a part of the property. All 
replacements and additions shall also be covered by this Security Instrument. All of the 
foregoing is referred to in this Security Instrument as the "Property.' 


saw 




■w 


FORM »10 t/Dt 



143 


Book 


llSOA 


. fi&s 


BORROWER COVENANTS thal Borrower is lawfully sstsed of the estate hereby conveyed 
and has the right to norlgafle, grant and convey the Property and that the Property is 
unencumbered, except for encumbrances of record. Borrower warrants and wilt defend 
generally the title to the Property against all claims and demands, subject to any 
encumbrances of record. 

THIS SECURITT INSTRUMENT combines uniform covenants for nafional use and non- 
uniform covenants with limited variations by Jurisdiclton to conslltule a unifonn security 
instrument covering real properly. 

UNIFORM COVENANTS. Borrower and Lender covenant and agree as follows: 

1. Payment of Principal, Interest, Escrow Items, PrepaiTOenl Charges, and Late Charges. 
Borrower shall pay when due the principal of. and interest on, the debt evidenced by the 
Note and any prepayment charges and late charges due under the Note. Borrower shell 
also pay funds for Escrow Items pursuant to Section 3. Payments due under the Note and 
this Security Instrument shall be made in U.S. currency. However, if any check or other 
instrument received by Lender as payment under the Note or this Security Instrument is 
returned to Lender unpaid, Lender may require that any or all subsequent payments due 
under Ihe Note and this Security Inslrument be made in one or more of the following forms, 
as selected by Lender (a) cash; (b) money order; {cj certified check, bank check, treasurer's 
check or cashier’s check, provided any such check is drawn upon an institulion whose 
deposits are insured by a federal agency, inslrumentelity. or en1Hy: or |d) Elechronic Funds 
Transfer 

Payments are deemed received by Lender when received at Ihe location desiBnaied in 
the Note or at such other locatior as may be designated by Lender in accordance with the 
notice provisions in Section 13. Lender may return any payment or partial peyment if the 
paymant or partial payments are Insuffident to bring the Loan current. Lender may accept 
any payment or partial payment insufocient to bring the Loan current, without waiver of any 
rights hereunder or prejudice to its rights to refuse such payment or partial payments in the 
future, bin Lender Is not obligaled lc apply such payments at the «me such payments arc 
accepted. If each Periodic Payment is applied as of its scheduled due date, Ihen Lender 
need not pay interest on unapplied funds. Lender may hold such unapplied funds unlil 
Borrower makes payment to bring Ihe Loan current. If Borrower does not do so within a 
reasonable period of time. Lender shall either apply such funds or return them to Borrower. 
If nol applied earlier, such funds wilt be applied to the outstanding principal balance under 
Ihe Note immediately prior to foreclosure. No offset or daim which Borrower mighl have 
new or in the future against Lender shall relieve Borrower from making payments due under 
the Note and this Security instrument or performing the covenants and agreements secured 
by tliis Security Instrumant. 

2. Appilealion of Payments or Proceeds. Except as otherwise desoibed in this Section 2, 
all paymants accepted and applied by Lender shall be applied in the following order of 
priority: (a] interest due under the Note; (b) prinripaldue under the Note; (c) amounts due 
under Section 3. Such payments shall be applied to each Periodic Payment In the order in 
which 11 became due. Arty remaining amoutrts shall be applied first to late charges, second 
Id any other amounts due under this Security Irstrument. and then to reduce the pnncipal 
balance of the Note. 


SFLM R«v il'CZ/Oa 


P« Jl < of 18 




FORM 3010 lym 



Soak 11504 Page 


If Lender receives 8 payment from Borrtwer tor e delinquent Periocfic Payment which 
includes a sufficient amount to pay any late charge due, the payment may be applied lo the 
delinquent payment and the late charge. If more than one Periodic Payment is outstanding, 
Lender may appty any payment received from Borrovuer to flie rep^menl of the Periodic 
Payments If, and to the extent that each payment can be paid in full. To the extent 
that any excess exists after the payment is applied to the full payment of one or more 
Periodic Paymertts, such excess may be applied lo any late charges due. Voluntary 
prepayments shall be applied first to any prepayment charges and then as described in the 

application of payments, insurance proceeds, or Utficellaneous Proceeds to 
principal due under the Mote shall not extend or postpone the due date, or change the 
amount, of the Periodic Payments. 

3. Funds tor Escrow liens. Borrower shall pay to Lender on the day Periodic Faymsnts 
are due under the Note, until the Mole is paid in full, a sum {the 'Funds') to provide for 
payment of amounts due for: (a) taxes and assessments and other items which can attain 
priority over this ascurlty instrument as a lien or encumbrance on the Property: {b) 
leasehold payments or ground rents on the Property, if any; (e) premiums (or any and all 
insurance required by Lender under Section 5; and (d) Mortgage Insurance premiums, If 
any, or any sums payable by Borrower to Lender in lieu of the payment of Mortgage 
Insurance pretntuma in accordance with the provisions of Section 10. These items are called 
'Escrow Items.' At origination or at ar>y time during the term of the Loan. Lenber may 
require that Community Asaodation Dues, Fees, and Assessments, if any, be escrowed by 
Borrower, and such dues, fees and assessments shall be an Escrow Item. Borrower shell 
promptly furnish to Lender all notices of amounts to be paid under this Section. Borrower 
shall pay Lender the Funds for Escrow Items unless Lender waives Borrower's obligation to 
pay the Funds for any or all Escrow Items. Lender may waive Borrower's obligation to pay 
to Lender Funds for any or all Escrow items at any lime. Any such waiver may only be in 
writing. In the event of such waiver. Borrower shall pay directly, when and where payable, 
the amounts due for any Escrow Hems for which payment of Funds has been waived by 
Lender and, if Lender requires, shall furnish to Lender receipts evidencing such payment 
within such time period as Lender may require. Borrower's obligation to make such 
payments and to provide receipts shall for all purposes be deemed to be a covenant and 
agreement cantained in this Security Instrument, as the phrase 'covenant and agreement" 
is used in Section 8. If Borrower is obligated lo pay Escrow ttems directiy, pursuant to a 
waiver, and Borrower fails to pay the amount due for an Escrow Item. Lender may exercise 
its rights under Section 9 and pay such amount and Borrower shall then be obligated under • 
Saclion 9 to repay to Lender any such amount. Lender may revoke the waiver as lo any or 
all Escrow Items at eny time by a notice given in acrordance with Section 15 and, upon such 
revocation, Borrower shall pay to Lender all Funds, and in such amounts, that are then 
required under this Section 3. 

Lender may, at any time, collect and hold Funds in an amount (a) sufficient to permit 
Lender to apply the Funds at the time specified under RESPA. and (b) not to exceed the 
maximum amount a lender can require under rcsp,A. Lender shall estimate the amount of 
Funds due on the basis of current data and reasonable estimates of expenditures of future 
Escrow Items or otherwise in accordance with Applicable Law. 


FORUOOIO 1/01 



145 


Book 11504 Page 867 


The Funds shall be held In an institution whose deposits are Insured by a federal 
agency, instrumentality, or enltly {including Lender, if Lender is an institution i,^Dsa 
deposits are so insured) or in any Federal Home Loan Bank. Lender shali apply the Funds 
to pay the Escrow Items no later than the time specified under RESPA. Lender shali not 
charge Borrower for holding and applying the Funds, annually analyzing the escrow 
account, or verifying the Escrow Hems, unless Lender pays Borrower interest on the Funds 
and Applicable Law permits Lender to make such a charge. Unless an agreemant is made 
in writing or Applicable Law requires interest to be paid on the Funds. Lender shall not bs 
required to pay Borower any interest or earnings on the Funds. Borrower and Lender car 
agree in writing, however, that interest shall be paid on the Funds. Lender^shall give to 
Borrower, without charge, an annual accounttfig of the Funds as required by RcSPA. 

If there is a surplus of Funds held in escrow, as defined under RKPA. Lender shall 
account to Borrower far the eaess funds in accordance with R©PA. If there is a shortage 
of Funds held in escrow, as defined under RESPA. Lender shall notify Borrower as required 
by RESPA, and Borrower shall pay to Lender the amount necessary to make np the 
shortage in accordance with RESPA, but in no more than 12 monthly payments. If there is a 
deficiency of Funds held in escrow, as defined under RESPA. Lender shall notify Borrower 
as required by RESPA, and Borrower shall pay to Lender the amount necessary to make up 
the deficiency In accordance with RESPA, bul in no more than 12 monthly payments. 

Upon payment in full of all sums secured by this Security Instrument. Lender shall 
promptly refund to Borrower any Funds held by Lender. 

4. Chars**: Uens. Borrower shell pay all taxes, assessmenU, charges, fines, and 
imposiliojis attributable to the Property which can attain priority over Ih'is Security 
Instrument, leasehold payments or ground rents on the Property, if any. and Community 
Association Dues, Fees, and Aaseasments. if any. To the extent that these items are Escrow 
Hems, Borrower shall pay them in the manner prowded In Section 3. 

Borrower shall prorriptly discharge any lien which has priority over this Security 
Instrument unless Borrower; (a) agrees In writing to the payment of the obligation secured 
by the lien in a manner acceptable to Lender, bul only so tang as Borrower is performing 
such agraemenl; (b) contests the lien in good faith by. or defends against entarcemanl of 
the lien in, legal proceedings which to Lender's opinion operate to prevent the enforcement 
of the lien while those proceedings are pending, bul only unBl aucli proceedings are 
concluded: or (c) secures from the holder of the lien an agreement satisfactory to Lender 
subordinating the lien to this Security festrumeirt. If Lender determinas that any part of the 
Property is subject to a lien which can attain priority over this Security Instrument Lender 
may give Borrower a notice identifying the lien. Within 10 days of the date on which that 
notice is given, Borrower shall salis^ the lien or late one or more of the actions set forth 

above in this Seclian 4. . . . -r »• 

Lender may require Borrower to pay a one-flme charge for a real estate tax verihcation 
and/or reporting service used by Lender in connection with this Loan. 


5FUC6 RW 


Pagi 6 s{ IS 


FORM MIC 1/CII 



146 


Book 1150^ 


5. Property Insurance. Borrower shall keep the improvefnenls now exisUng or hereafter 
erected or the Property insured against loss hy (ire. hjuards included within the term 
'extended coverage,' and any other haiards Inchiding. but not limited to. e^hquates and 
floods, for which Lender requires insurance. This Insurance shall be maintained ti> the 
amounts {including deductible ieveis) and for the periods that Lender requires. What 
Lender requires pursuant to the preceding sentences can change during the term of the 
Loan, The insurance carrier providing the insurance shall be choswi by Borrower subject to 
Lender’s right to disapprove Borrower's choice, which right shall not be exercised 
unreasonably. Lender may require Borrower to pay. In connaclkwi vnth this Loan, either; 
[a] a one-time charge for flood zone determination, certification and tracking services; or (b) 
a one-time charge tor flood zone determinalion and certification services and subsequeni 
charges each time remappings or similar changes occur which reasonably might affect such 
determination or certincation. Borrower shall also be responsible tor the payment of any 
fees imposed by the Federal Emergency Management Agency in ccmnectlon with the review 
of any flood zone determination resulling from an objection by Borrower. 

If Borrower fails to maintain any of Ihe coverages described above. Lender may obtain 
Insurance coverage, at Lerdei^s option and Borrower's expense. Lender is under no 
obilgation to purchase any particular type or amouni of coverage. Therefore, such coverage 
shall cover Lender, but might or might not protect Borrower. Borrower's equity in the 
Property, or the contents of the Property, against arty risk, hazard or liability and might 
provide greater or lesser coverage than was previously in effecl. Borrower acknowledges 
that the cost of the insurance coverage so oblained might significantly exceed the cost of 
insurance that Borrower could have obtained. Ai>y amounts disbursed by Lender under 
this Section 5 shall become additionaf debt of Borrower secured by this Security Instrumen . 
These amounts shall bear Interest at the Note rale from the date of disbursement and aha!) 
be payable, with such Irlerest. upon notice from Lander to Borrower requesting payment. 

All insurance policies required by Lender and renewals of such policies shall be subject 
to Lender's right to disapprove such policies, shall include a standard mortgage clause, and 
shall name Lender as mortgagee and/or as an additionai loss payee. Lender shall have the 
rioht to hold the policies and renewal certificates. If Under requires. Borrower shall 
promplly give to Lender all receipts of paid premiums and renewal notices. If Borrower 
obtains any form of insurance coverage, nol rtherwise required by Lender, for damage tc, 
or destruction of, the Property, such polic7 shall include a standard mortgage clause and 
shall name Lender as mortgagee and/or as an additional loss payee. 

in the event of loss, Borrower shall give prompt notice to the insurance carrier and 
Lender. Lender may make proof of loss if nol made promptly by Borrower. Unless Lender 
and Borrower otherwise agree in writing, any insurance proceeds, whether or toe 
underlying insurance was required by Lender, shell be applied to restcration or repair of the 
Property, if the restoralion or repair » econwnicaBy feasible and Lender's security is not 
lessened. During suen repair and restoration period, Lender shall have the right to hold 
such insurance proceeds until Lender has had an opportunity to Inspect such Property to 
ensure the work has been completed to Lender's satisfeefiom. provldwl that such inspection 




sn.07 


ca'iiw 


Pao* 7 pf IS 


FOHMOOID im 



Book 11S04 Pase 


869 


shall be undertaken promptly. Under may disburse proceeds for the repairs and 
restoration in a single payment or in a series of progress payments as the work is 
completed. Unless an agreement is made in writing or Applicable Law repuires interest to 
be paid on such insurance proceeds, Lender shall not be required to pay Borrower any 
interest or earnings on such proceeds. Fees for public adjusters, or other third parties, 
retained by Borrower shall not he paid out of the insurance proceeds and shall be the sole 
obligation of Borrower. If the restoration or repair is not economically feasible or Lender's 
security would be be lessened, the insurance proceeds shall be applied to the sums 
secured by this Security tnslrument, whether or not then due. with the excess, if any. paid to 
Borrower. Such insurance proceeds shall be applied In the order provided for in Section 2. 

If Borrower abandons the Property, Lender may file, negotiate and settle any available 
insurance claim and related matters. If Borrower does not respcmd wthin 30 bays to a 
notice from Lender that the insurance carrier has offered to settle a claim, then Lender may 
negotiate and settle the claim. The SO-day period will begin when the notice is given. In 
either event, or if Lender acquires the Property under Section 22 or otherwise, Borrower 
hereby assigns to Lender {a} Borrower's rights to any ihsurance proceeds in an amount not 
to exceed the amounts unpaid under the Note or this Security Instrument, and (b) any other 
of Borrower's righls {other than the right to any refund of unearned premiums paid by 
Borrower) under all insurance policies covering the Property, insofar as such rights^ are 
applicable to the coverage of the Property. Lender may use the insurance proceeds either 
to repair or restore the Property or to pay amounts unpaid under the Note or this Security 
Instrument, whether or not then due. 

S. Occupancy. Borrower shall occupy, ealablish, and use the Property as Bonowar^s 
principal residence within 60 days after the execution of this Security instrument and shall 
confmue to occupy the Properly as Borrower's principal residence for at least one year sllef 
the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not 
be unreasonably withheld, or unless extenuating circumstances exist which are beyond 
Borrower''s control. 

7. Preservation, Maintenance and Protection of the Property; Inspectons. Borrower shalf 

not destroy, damage or impair the Property, allow the Property to deteriorate or commit 
waste on the Property. Whether or nor Borrower is residing in the Property. Borrower shall 
maintain the Property in order to prevent the Property from deteriorating or decreasing in 
value due to its condrlion. Unless it is determined pursuant to Section 5 that repair or 
restorslioii is not economically leasjbte. Borrower shall promptly repair the Property if 
damaged to avoid further delerioralioii or damage. If insurance or condemnation proceeds 
are paid in connection with damage to. or the taking of, the Property, Borrower shall be 
responsible for repairing or restoring the Property only if Lender has released proceeds for 
such purposes. Lender may disburse proceeds for the repairs and restoration In a single 
payment or in a series of progress payments as the work is completed. If the insurance or 
condemnation proceeds are nol sufRctBcrt to repair or restore the Property, Borrower is not 
relieved of Borrower's obligation for the compiBtion of such repair or restoration. 

Lender or its agent may make reasonable entries upon and mspectfons of the Property. 
If it has reasonable cause, Lender may inspect the Interior of the Impravemenls on the 
Properly. Lender shall give Borrower notice at the time of or prior to such an interior 
inspection specifying such reasonable cause. 


n 


SFLOB Htv (Uril/DO 


p»«i eons 


fORMseno trci 



148 


Book 


Page B70 


B Bormwer's Loah ApplicaBon. Borrower shall be in default if. durinfl the Loan 

or aay p..o„s o, acting “ 

or with Borrower’s hnowledge or coriaeni gave matenally false, mislaabins. or maccurale 
InformaSon or ptai™.nl. la Lend.r (ar Mled to pravide Lander 

in connection with the Loan. Material representations include, but are not limited to 
rnpreannutions concerning Borrower's occupancy of die Property as Borrower's pnncipa 

residence. . 

5. ProtecOon of Lender^. IntereJl In the Property and RiglltJ Under ttls Seconty 
Inetrement If (a) Borrower tails to perform Itie covenanls and agreeinenf. contnmeb in tois 
Sccurily Instrument (b) ttiere is a legal proceeding that migl.! significantly alfccl Len 
fnleresf in the Property and/or rights under Ihia Secority Insmimcnl (such as a J 

in bankruptcy, probate, tor condenmallon or forfeltere. for enlorcemeot of a inn "ipJ 

lie p lorlt over this security Instmmenl or to enforce laws or 
rr^w. ha abaodoned the Properly, then Lender may do and pay 
rea^nable or appropriate to protect Under-, Inlerost In the P, oped, ^ 

Security Instrument, including protecting and/or assessing the value o the Pt“P^y J "I 
sBcurino and/or repairing the Property. Lender's actions can include, hut are not limited to. 
(a) paying any sums secured by a lien which has priority over this Seraiih/ •*’> 

appesrtng In court; and (c) paying reasonahle attorneys' lees 10 protect » Int.rest In the 
Property and/or rights undot this Security Instrument. Including 
bantoptny proceeding. Securing the Property indudee. but Is not limited to. 

Property to make repairs, efiange locks, replace or board up doors and windOTS, dram 
v/aler from pipes, eliminate building or other code violations or dangerous 
have ulilitlestomed c«i or oS. Although Uhder may take action unOet this Sedion S Uende 
Sres not have to dp so and Is nol under an, duty o, obligation to ’ d that 

Lender incurs no llapllily tor not taking any or all actions aidhonced “"der this Section ^ 
Any amounls disbursed by Lender undertbls Section 9 snail 
Borrower secured by this Security Instrument These amounts sball beat Interest el Ills 
sr^ato from thelt. of disbursement and shall be payable, with such interest, upun 
notice from Uniter to Borrower requesting payment. 

irihis Security Instrument is on a Imoehold. Borrower shall em"Ply Wllh all the 
provisions of the lease. 11 Borrower negoires fee Bile to Ihe Property, Ibe leasehold and 
fee title shall not merge unless Lender agrees to the merger in writing. 

to. Mortgage Insurance. If Lender reguited Mortgage Insurance as a condition 
making th7Laan, Borrower shall pay the premiuirm rcgeired to mamtein the Mortgage 
Insurance in etteet If, for any reason, me Mottgage Insiirwice cr^rage regu, ed Pk Le"de 
ceases to be available from the martgage insurer thal previously provided s ch insur npe 
and Borrower was reguired to make separately designated paymenls toward he premium 
for Mortgape Insurance, Borrower shall pay the 

BUbslantlallv equivalent to the Mortgage Insurance previously in p"'-'' “ 

subslanlially npuivalent to the cost to Borrower ot Ibe Mortgage Insurance previously in 
erte? from an^llernete mortgage insurer selected by lender. " 

Mortgage Insurance coverage Is nol available. Sorrower shall continue to pay to Lend" 'ha 
amount of the separately designated payments that were dee when the innurance coverage 


SFU» 


MS' ca'ii/n 




FORMMIO 1/01 


149 


Book 11S04 Page 


'Sd ths premiums for Morlgage tesurence. II 

:„„ditlen of making the Lean and Borrower was "J" “ nJpnemLs 

naymenls toward Itie premiums lor Mortgage less 

•egnirad Id mainlaln Mortgage '7™» i„\™;oa„se with any 

::S=r=HE=rE-rrr-r;... 

° ''^laae“2rer' 1"** total risk on all such insuranoe In lords Ir.m time 1= 
time, and ma, enter inlc «:.°a,r:^^^ 

::;gZ“';lr:r"m°rh- “Xbla (which ma, Include (unOs obtained Irom Mortpa.e 

or indirectly] amounts that derive irom { , ® . sharing or modifying the 

Borrowers payments for Ma.gage .n aHliale of 

the insurer, the arrang.ment Is oH.n termed -captive ^ p„ 

An, each a,r«m.nB «'» 

S;”:Sm“;rw™rwiirriu",e M-ance, am. gray will no, enhde Borrower .0 
Thee, riglds ma, include ,h. J TneuTn” terminated 

rutemS;,is:r teS» -h'-- ■“ 




FORM 3010 


i«n 


150 



Book 11504 Page 87S 


,1 As.isnn„.t ol Proc.«l., FM..'*.-. «l Miscellaneous Proceeds 

is da™:"'src:Mt~ proceeds sP.II Ire applied to 

reJ^L or 'repair clthe Proper^ ».h. -ttaVlTr^loXZw “ 
Lenders seciirlty 15 nol ““™ p“^eas until Lender has had an opportunity to 

have the nght to hoW such Miscellaneous comnleled to Lendei^s satisfaction, 

inspect such Property >0 ^ Tutr^en pL^. Under nay pay tor the repair, 

prtmlded that such inspection shall he undeitaKen promp V uaVBents as the work is 

und resloralion in a slnole „ Applicable Uv, requires Interest to 

L==;“SSESS;r3L”r= 

:jfSE:Sr4"-sa?— — 

Kr:.nr=ir.5r£ 

SH£j:iri^;rrv-»s-r2r-=^ 

~S=rB‘rcr:r.=^ 

r r.r: 

whether or no) men due. Oppo^ng ^ ^^hom Ra-rower has a right of action in regard 

MiscellaneDUS Proceeds or the party against whom Dwrower has a ngni 
to Miscellaneous Proceeds. 



151 



Book llSO-l Pago a73 


shall be in default if any acton or praceeding. “hal^oil =r 
begun that In LenCer's judoment. could rnsull In foifcance of the Piwnrty or other ™tenal 
• ^ - 1 rrf I intprRBt in ihc Propertv or rights under this Security Instrument. 

™ 0 TOWCr"can cure such a default and, if acceleration has occnrred minsBte “ P™”''*"' " 
Seclion ts by causing the acton or praceeding to be diemissed wdh n niling that in 
Ltoer's itogmertl, precludes fpifeiure of the Property or other material impaiiment o 
Lder-s interest in the Property or rights under Ms Security Instrnra^t. The Proceed o 
say award or dairo lor damages that are attrlbPtaPle to the impairment of Under's 

in the Properly are hereby assigned and Shall be paid to Lender. ^ 

All Miscellaneous Proceeds Ihat are not applied to restoraiion or repair of the Properly 

shall be applied in the order provided for in Section 2. i;„, 

12 BDirn.er Not Releasnd; Fntteironce By Under Mol a tVoiyer. Eateneion oflhn lime 
lor paym.nl or mpdiBcalipn of amortijaton ol the sums »«cpred by this Becurdy 
granled by Lender to Boirower or any Successor In Intorest of Borrower shall “P"* ' ^ 
release the liability of Borrower or any Successors in Intaresi of Borrower. Under shni nd 
to repulred to comlde proceeding, against anySaccassor la ^ 

refuse to extend time for payment or otherwise modiiy amortiralion of the sums secure y 
MS sVdurinsrmeht by »r -y demand made b, the original BomPwer » any 
SuccoBBOrs in Interest of Borrower. Any forbearance by Under In exercising any nghl or 
romedy Including, without llmitalion, Lender's acceptance of p„e' 

entities or Successors in Interest of Borrower or in amounts lass than the ameun. than Pus, 
shall not be a waiver of or preclude the exnrclae of any right f^ 

12, Joint and Several Liabllityl Co-signers; Successors and Assigns Bound, Borrower 
covenants and agrees that Botroweds obligations and liabiniy shall be joinl 
However any Borrower who cosigns Ms Security lnslram.nl hut does not execale 'P« Note 
^sTs ignen laMrco-sIgnins Ms Secarity tasiraman, only to mortgaga, grant an Ctoyey 
e 00 X 01-5 in inresl in the Ptoparty uadar the leriiis oflhis Secanty Instrument h) Is not 
pars™ y Ob S to pay the sums secared by th'm Security Instrument, and |e) agre s 
ma, Lenda° s “d aSy U.; Borrower can agroe to extend, modify, forbear or mahe w 
aocommtouhons with rajard to the terms oilhis Secarity Inslramenl or the Nola without 

“^‘su biedTthe'prouision of Seclion 11. any successor in Inler^ 

assumes Borrower's obligations under this Secarity Insirumeat m wrihiig. and is aPPfW'P 
by Lender shall obtain ah of Borrow.r's rights and benalils 

Borrower shall not bo released from Borrower's obligahons aad liatehly under this SecurW 
Instrumeul adless Lender agrees to such reloase In wrihw ?' Tad totomfe 

of this Security Instramanl shall hind |axcapl as provided in Section 20) and banatit 
SLJccessors and assigns cjf Lender. _ 

11 LoaaChargas, Lnadcr may charge Borrower lees for services performed in 

co„neln“«h Borrower's dafaaH for the parppsa of protealing Lander s mternst n the 
Property and righls under Ihi. Seourlty inslramenl. indading, bal non 
fees property inspection and valuation teas. In regard to any othor fees, the absence in 
Ixpros authoZ in this Security laslrumenl to charge a specinc f=. to Bnriower hall n^ 
bXunstra Jas a prohibition on the charging afsaah fee Lander may pp. charge fees that 
are expressly prohibited by this Secarity Inslrumeirt or by Appileabte Law. 




FORM X10 1/cn 


152 


a 


Book llSO-i Paae 67* 


If1h« Losn is subject to a law which sets maximum loa» charges, ami that law » rinally 
intetprelcd so that the interest or other loan chatses colleclerl or to he colleriBh m 
connection with the boan exceeri the permiltmf limits, them (a) any such ton charge she 
be reduced by the amount necessary to reduce the chame to the permitted imit and (b) 
any sums already collected Irom Borrower which exceeded permitted limits wit be reninded 
to Borrower. Lender may choose to make this reftind by reducing the pnnapal riwed under 
the Note or by making a direct payment to Borrower. If a refund reduces principal, fhe 
reduction will be treated as a partial prapaymenl wilhoul any prepayment cha^e (wheihe 
or not a prepayment charge is provided for under the Note). Borrower s acc^tance of any 
such refund made by direct payment lo borrower will constilute a waiver of any right 0 

action Borrower miflht have arising out of such overcharge. 

IS. Nollces. All notices given by Borrower or Lender in connection with this Security 
Instrument must be in writing. Any notice lo Borrower la ' 2 

Instrument shall be deemed la nave been given lo Borrower whan mailed by first class nan 
or when actually delivered to Borrower's notice address if sent by other means. Notice to 
any one Borrower shall constitute notice to ell BOTOWers unless Applicable Law Wbressly 
requires olherwise. The notice address shall be the Pnyperty Address “ ' 

designated a substitute notice address by notice to Lender. Borrower shall promplly notify 
Lender of Borrower's change of address. If Leader spaciCas a procedure for repomw 
Borrower's change of address, then Borrower shall oaly report a change of address through 
that spaciCad procedure. There may be only one desigaated aolic. 

Security Instrument at any one time. Any notice to Lender shall be plven by delivering it r 
by mailing tl by first class mail ta Leader's address staled herein unless Lender has 
designated another address by notice lo Borrower, Any noUce in connaclion whb tb s 
Security Instrument shall not be deemed to have been given to Lender until actuahy 
received by Lender, If any notice required by this Security lastromeni is also required 
under Applicable Law, the Applicable Law requirement will sabsfy the cotrespanding 
requirement under this Security instrument. 

IB. Governing Law: Severability; Rules of Construc««#>- This Security Instrurnent shall 
be governed by federal law and the law of the lurisdiction in which the Property is located. 
All rights and obligations contained in this Security lostrumaat are sub|act to any 
requirement! and limitations of Applicable Law. Applicable Law might expliatly o. |mph=iB 
allow the parties to agree by contract or it might be silent, but auch Sliepce shall not be 
conslroep as a prohibition against agreement by contract. In the eveat that any provision ot 
clause ufthls Becurlly Instrument or the Note oonttict with Appllbable Law, such conflict 
shall uol affect other provisions ot this Security Instrument or the Note which can be given 
effecl wilhoul Ihe conflicting provisioti. 

As used ir this Securily Instrument la) words of the masculine Bander shall mean ard 
include corresponding neuter words or words of the feminine gender; 
singular shall mean and include the plural end vice versa; and (cl the word may" gives 

sole discretion without any obligation to take any action. 

17. Borrower's Copy. Borrower shall be given one copy of the Note and of this Security 
Instrument. 


Rr.' it/ozroc 


PajatSar tS 


FORM WTO tfoi 


153 


Bock 1150* Pa 3' 


irAnsfer of litle by Borrower at a future date to a purchaser. 

Tb^I or anTparl oftha Property or an, Interos. .n Ihe Property io sold or transferred 

further notice or demand on Borrower. _ 

^ oirtii»», Oskinoate After Accel«li«L if Borrower meets certain 

conditions^rswlrsnalldavsths^.*^^ 

liiiiiSiiis 

pays Lender a I sums which iher ^ cc-enanls or 

rpr'erentMc'ays a., expenses in^rred in enfe^np S"?, 

“S;,r:rPan;arSer';a7rsUJrs.r^^^^^^ 

axpenses in ona Pr mare of the rdlowinS forms. - a„, 

instrumentality or entity; or (d) Electronic r-un s remair fuUy effeclive as If no 

“:S2 = --V >" - 

Bcceleralion under Section 18, 

20 Sale of Nate- Chapje ot Lean Servicer; NoBce el Grievapca. The Note or a Part'^ 



foam 3Q10 


t/01 


154 



Book 11504 Page 87& 


this Securily Instrumeni, and Applicable Law, There also miflht be one or more changes ot 
the Loan Servicer unrelated to a sale of the Note. If there is a change ctf the Loan Servicer, 
Borrav/er will be given written notice of the change which will state the name and address 
of the new Loan Servicer, the address to which payments should be made and any other 
information RESPA requires in connection with a notice of transfer or servicing. If the Note 
is sold and thereafter the Loan is serviced by a Loan Servicer other than the purchaser of 
the Note, the mortgage loan servicing obUsahons to Borrower wlH remain with the Loan 
Servicer or be transferred to a successor Loan Servicer and are not assumed by the Note 

purchaser unless otherwise provided by the Note purchaser. 

Neither Borrower nor Lender may commence, ioi^. ot joined to ar»y judicial action ^ 
(as either an individual iltiganl or the member of a class) that arises from the other party s 
actions pursuant to this Securily Instrument or that alleges that the other party has 
breached any provision of, or any duty owed by reason of, this Security Instrument, until 
such Borrower or Lender has notified the other party (with such notice given in compliance 
with the requirements of Section 15) of such alleged breech and a^ordeiJ the other party 
hereto a reasonable period after the giving of such notice to lake corrective action. If 
Applicable Law provides a time period which must elapse before certain action can be 
taker, that time period will be deemed to be reasonable for purposes of this Paragraph. 
The nctlcB of acceleration and opportunity Jo cure given to Bonrowar pursuant to Section 22 
and the notice of acceleration given to Borrower pursuant to SecUor 18 shall be deemed to 
satisfy the notice and opportunity to take corrective action provisions of this Section 20.^ 

21. Hazardous Substances. As used in this Section 21: (a) 'Hazardous Substances' 
are those substances defined as iokic or hazardous substances. polluJants. or wastes by 
Ervironmental Law and the following substances; gasoline, kerosene, other flammable or 
toxic petroleum products, toxic pesticides and herbicides, volatile sttivenls, materials 
containing asbestos or formaldehyde, and radioactive materials: (b) 'Environmental Law 
means federal laws and laws of the jurisdiction where the Property is located that relate to 
health, safety or environmental pr^eclron; (c) 'Environmental Cleanup' includes any 
response action, remedial action, or removal action, as defined in Environmental Law; and 
(d) an 'Environmental Condition' means a condition that can cause, contribute to, or 
otherwise trigger an Environment Cleanup. 

Borrower shall not cause or permit the presence, use. disposal, storage, or release of 
any Hazardous Substances, or threaten to release any Hazardous Substances, on or In the 
Propsrty. Borrower shall not do, nor allow anyone else to do, anything affecting the 
Property (a) that is in violation of any Environmental Law. (h) which creates an 
Environmental Condition, or (c) which, due to Ihe presence, use. or release of a Hazardous 
Substance, creates a condition that adversely affects the value of the Property. The 
preceding two sentences shall not appiy to the presence, use. or storage on the Property of 
small quantities of Hazardous Substances that are generally recognized to be appropriate to 
normal residential uses and to maintenance of the Property (induding, but not limited to, 
hazardous substances in consumer products). 


S?Lli 


DS'II' 


Papi 15«l 18 




1/01 


155 



Book 1150'- Piss' 8^^ 


BotTOwer shall promptly give Lender wrttlen notice of (a) any investgation, claim, 
demand, lawsuit or other action by any Bovemirvental or regulatory agency or private party 
Involving the Property and any Hazardous Substance or Enviroomeina! Law of which 
Borrower has actual knowledgei (b) any Environmental Condition, including but not limited 
to, ary spilling, leaking, discharge, release or threat of release of any Hazardous Substance, 
and (c) any condition caused by the presence, use or release of a Hazardous Substance 
which adversely affects the value of the Property. If Borrower learns, or is notified by any 
governmental or regulatory authority, or any private party, that any removai or other 
remediation of any Hazardous Substance affecting the Property is necessary. Borrower shall 
promptly lake all necessary remedial actions h accordance with Environmental Law, 
Nothing herein shall create any obligation on Lender tor an Environmental Cleanup. 

NON-UNIFQRM COVENANTS. Borrower and Lender further covenant and agree as 
follows: 

22, Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration 
following Borrower's Preach of any covenant or agreement in tills Security Irstrument (but 
not prior to acceleration urrder Section 18 unless ApplicaMe Lew provides otherwise). The 
notice shall specify: (a) tire default; (b) the action required to euro the default (c) a date, 
not less than SO days from the date the rtotlce is given to Borrower, by which the default 
must be cured; and (d) that failure to cure the default on or before Ihe date specified in the 
notice may result in acceleration of the sums secured by this Security Instrument, 
foreclosure by judidd proceeding and sale of the Property. The notice shall iurtber inlorm 
Borrower of the right to reiMlate after acceler^on and the ligM to assert in the foreclosure 
proceeding the noive»stence of a default or any other defense of Borrower to acceleretiori 
and foreclosure. If the default is not cured on or before the date specified in the notice, 
Lender at its option may require immediate payment in full of all sums secured by this 
Security Instrument without further demand and mayforectose this Security Instrument by 
judidal proceedinfl. Lender shall be entIUed to collect all expenses incurred in pursuing the 
remedies provided In this Section 22, induding. but not lindted to, reasonable attorneys' lees 
and costs of title evidence. 

23. Release. Upon payment of all sums secured by this Security Instrument. Lender 
shall release this Security Instrumenl Borrower shall pay any recordation costs. Lender 
may charge Borrower a fee for releasing this Security insirument, bul only if the fee is paid 
to a third party for services rendered and the charging of Ihe fee is permitted under 
Applicable Law. 

24. Attomeyst' Fees, As used in this Security Instrument and the Note, attorneys' fees 
shall include those awarded by an appellate court and any attorneys' fees incurred in a 
bankruptcy proceeding. 

25, Jury Trial Waiver. The Sorrower hereby waives any right to a trial by Jury in any 
action, proceeding, claim, or counterclaim, whether in contract or tort, at law or in equity, 
arising out of or in any way related tc this Security Instrument or the Note. 


SFLIS Rtv B/M/OO 


Pag* 16 I 


iHlStS-j 


FOJtMdPfO 1/11 



156 





^ ^ u I as ibantification. 

who is oersonally Known to me or who has produced 



SFLia Rev lO/lB/OO 


W 


FORM 3010 1/01 



158 



Book 11504 Paso SBO 

Exhibit "A" 


Lot 50, BRANDON CHASE, as per plat thereof; recorded in Plat Book 55, Page 13, 13A-130, of the Public 
Records of Duval County, Florida 


159 




160 



Book 11M4 Pane 


01335B3346 

BY SIGNING BELOW. Borrower accepts and agrees to the terms and provisions 
contained in this Prepayment Rider. 



prepayment nioer 
(AL, AZ, CA, CO, C 
MA. ME, M7, HD, r 


{Page 2 of 2) 
EC180L fiSV. 09/04/03 


161 



Book 11501 F;»a=.»''3 


PLANNED UNIT DEVELOPMENT EIDER 

THIS FLAMMED UNIT DEVELOPMENT RIDER is made this October 31, 2tM)3, and is mcocporated oto and 
shall be deemed lo amend and supplemenl the Mortgage, D-*d ofTrast, orScaBrilyDad (the •^ecun^ 
same date, given by the undersigned (tbs "Borrower') m secure Borrowers Note to WELLS F^GO HOME 
MORTGAGE. INC. {the "Lender") of the same date and coveiing the Propsiiy desenbed in tiie Security Instiiiir..n! and 


109D9 BRANDON CHAa; DR, JMtsonvme, Florida 32219 
(Proper^ Address) 

me Prop-r^. inctado, bul i, »! limiKd B, d pi«»l of 1."^ i»poooj ”!•>■ = '!'«»» '“6'“” f ^ “■* 

“Declaration"), The Property is a part of a planned imit deMclopmeiK Jcoovm as 

BRANDON CHASE 
(Name of Plsnited Uoii Development) 

(the "PUD") The Property also includes Borrower’s intctesl ID the bomcowDcts association or equivalent entity owning or 
Lnasiis the common kcas md Wife of the PUD (the "Oraet! Asfeuton') imd the toes, btmehts aid proceeds of 
Borrower’s interest. 

PUD COVENANTS. In addition to the eovsrjots and agreements mads io tlie Security Inssrumsrl, Borrower and 
Lcnderfurthetcovenantacdagreeasfollows: ..... . .v oiirv, 

A. PUD Obligations. Bonower shall perform all of Bonower s obligaaoiu imdei the PUD s 
ConscitueBt Doeumenil The "Conslitusni Documems' are tlw (i) DeclaratioD. (ii) iriisles of 
incorporadon, oust intrument or any equivalent documeot which create* the Owners AssociaTte-D; and 
(iii) any by-laws Or other rules or regulations of the Owners Associatioa Borrower shall prompily pay. 
when due, all dues and ftssasmeuts iinposeiipuisnBnl to the Consiinieiil DocurociUs. 

B Property liuurance. So loog as the Owners Associadon maintains, wilb a geoerally atttptea 
ifuurance carrier, a "mafitet" or "blanket" poUay insuriDg the Property which is sataiclo^ to Lender and 
which provides insurance coverage hi the amounts (includbg deductible kvels). for the ^nods, and 
against loss by fire, haaards included wrthia the term "enunded coverage." and any other hazan^, 
inctuding but not limiteii to, earthquakes mu: floods, for which larder requires insunDice, then, (i) 

Lender waives the provision in Scetkm 3 for the Periodic Payment lo Unda of the yearly preimum 
installnsncs for nroperty insumoe on fee Property; and <ii) Bonower’s obUgatioE under Section 5 to 
naintam proper^ msurance coverage on the Property is deemed satisfied lo the extent that the required 

coverage is provided by the Owners Association policy. 

What Lender requires as a ccmdilicm of this waiver can change during fee term of the loai 
Bonower shall give Lender prompt notice of any lapse in required proper^ insurance coverage provided 
bythemasterorblonketpolicy. 

In fee event of a distribution of property insniancc proceeds in Ueu of lestoiauon or 
following a loss to fee Property, or to common aiea.s and fecilities of the PUD, any proceeds pa^ble to 
Borrower arv hereby asigned and shaK be paid to lender. Lender sbr.U apply the procce^ to the sutus 
secured bv the Security Instnimem, whetbsr or not feen due, with the excess, if any, paid to Borrower. 

C. Public LiahiliD’ iBSUrance. Borrower shall take such actions as nay be reasonable to insure 

that the Owners Association mamtains a public liability insurance policy acceptable iO form, amount, arri 
extent of coverage to Lender. _ , 

D. Condemnation. The proceeds of any award or claim for danuges, direct or consequently 
payable to Borrower in connection wife any condemnalioD or other taidi^ of all or any part of the 
Property or the commoi] areas and facOlties of the PUD, or for aiq- conveyance m lic« of condsi^tmn, 
arc hereby assigned and shall be paid to Under. Snch proceeds shall be applied by i^nder to the sums 

secured by theSecuritylnsiruinenl as piovidedinSccdOD si. _ _ 

E. Lender’s Prior Consent. Bonower dull not, esoepi after notice to Lender anc wife Under s 

prior written consenl, sifeer partition oi subdivide the Properly or consent la (i) the abandonment or 
MULTISTATE PUD RJDER-Sinjic F.mily-Fanni= iM.WFrtd*c Mat UNIFORM INSTRUMEIIT F.™ 31S0 ttOt I cf2pos‘^) 


162 



Book 11504 Pk90 88* 


teminilioii of the PUD. swept for ahandonrasBt M tenninatiiin required by law re the case of subsuntmi 
destruclioD by fiie or oiher caaiult)’ or in the case of 2 nking by ctmd«jmD2tior or enmsDt domau; (u) 
UN amendirwnt to any provision ofibe "ConstiTiiciKDocntKDls- iffte provision is for the express bensni 
of Lender (tii) lamiiiatioc of professional nanasement and assutnAon o. self-management of Uie 
Owners Aasodalion; nr (iv) any action which would have the effect of rendenns the puobc liab.hiy 

insuniBce coverage maintained by the Owners Association unacceptable to Lender. 

F. Remedies. If Bonowei does not pay PUD dues and assessments when due. then Lender may 
pay them. Any amounts disbursed by Lender under this paragniph F shall become additional debt of 
Borrower secured by the Security lastnimenL Unless Borrower and umder agree to other tecTO O: 
payment, these amounts shaU bear intcreLW fiom the dale of disbursement at the Note rate ami shaU be 
payable, with interest, upon notice froin LcBdcr to Ba-rower ic((ussiuig paynwnt. 


BY SlGrWG BELOW, Borrower accepts 



MOLTISTATE PWl RIDER-Si.ele M-f rridb M.< UtOTOItll mS'ntUMINT H5« l«i CW ! cP m’^) 


163 


V- 


IN THE dRCUTT COURT OF THE FOUIOH JUDICiALGjRCUIT IN AND FOR 
DUVAL COUNTSf. FLORIDA, CIVIL ACTl'^’'’ 


U.S. BANK TRUST NATIONAL ASSOCIATION. AS 
TRUSTEE OF THE SEQUOIA FUNDING TRUST 


Ja6oUEL1NB YULEE: flkANDON /6 hase 

HOMEOWNERS ASSOdAHON, INC.: HffiC AUTO 
ACCC^NIS INC., F/K/A OFL-A RECEIVABLES CORP.: 
WNra^OWN SPOUSE OF JACQUEUNB YULEE; 
UNKNOWN TENANT rl; UNKNOWN TENANT #2: AND 
OTHER UNKNOWN PARTIES, INCLUDING THE 
UNKNOWN SPOUSE OF ANY TTIIE HOLDER JN 
POSSESSION OF THE PROPERTY, AND, IF A NAMED 
DEFENDANT IS DECEASED, THE SUFVIVINC SPOUSE. 
HEIRS. DEVISEES. GRANTEES, CREDITORS, AND AU, 
OTHER PAiniES CLAIMING BY, THROUGH. UNDER 
OR AGAINST THAT DEFENDANT. AND THE SEVERAL 
AND RESPECnVB UNKNOWN ASSIGNS, SUCCESSORS 
IN INIERBST, TRUSTEES OR OTHER PERSONS 
CLAIMING BY. THROUGH. UNDER OR AGAINST ANY 
CORPORATION OR OTlffiR LEGAL ENTTIY NAMED AS 
A DEFENDANT, AND ALL CLAIMANTS, PERSONS OR 
PARTIES, NATURAL OR CORPORATE, OR WHOSE 
exact LEG.AL STATUS IS UNKNOWN, CLAIMING 
UNDER ANY OF THE ABOVE NAMK) OR DESCRIBED 
DEFENDANTS 


2009 Cft a(l3074XMr 


DIVISION CV-P 


Defaidaiit(a} 


tdORTGAOS TOKECLOStaiE COMPLAINT •; 

HaMHIL U,S. BANK ” 

SPOUSE OF JACQUELINE YULEE. UNKNOWN jN POSSESSION OF O 

UNIC^OWN PAKHES. INCLUDING THE UNKNOWN^US^ SURVIVING SPOUSE, HEIRS. 'V] 

the PROPEKIY, and, F a N«^ BY. THROUGa UNDER OR 

DEVISEES, GRANIEES, ASSIGNS. SUCCESSORS '‘i 

UNDER ANY OFIHE ABOVE NAMED OR DESCRIBED DEFENDANTS ancj aEeges. 



164 


1. -mis IB an acton to forcclMe a mortgage unreal piDocrty located and altnated in 
DUVAL Couniy, Florida, All refcrenceB to -Offlrdal Beconia Books" |re to tbOBe liled In the 
Current Public Records of said County. 

2. On October 31, 2003, JACSUELDJE P. YtMlE as Mortgagor, being then the 
ownet of the subjeet property executed and davered aPrnnnissOD, ftote ['Note') and a Mortgage 
(Mortgage ) securing the payment of the Indebtedness to WELLS FAROO HOME MOfTTGAGE, 
me Hie Mortgage was recorded on December 3, 2003, In OIBclal Seeords Book 1 lo04, at 
Page 862, and mortgaged the real properly described therein rProperty"). A copy of the Note 
ami a com. of the Mortgage are attached as Exhibits "A" and '■B" respectively, and Incorporate 


herein. : 

3 The Mortgage Is a purchase money mortgage, the prjicecds of the loan evidenced 
by the Note having been need by the Mortgagor m pay all or a porttn of the purchase price of 
the property. The Instrument of eonveyanee to Mortgagor In reconfcd In OfBelal Eecords Bon 
11504, at page 861. i 

4. PlaintlH own. and holds the Note and Mortgage by reason; of Note endorsement, 

5. Plaintiffs Mortgage Is superior In digol^r to any andlall other mortgages or liens 
against the property by any Defendant named herein. 

6. The Note and Mortgage are m defeult by reason of nonpayment of the 
instaltaent due January 1. 2007, and all payments subsequent thereto. 

7. Plaintiff gave notice as required under paragraph 22 of the Mortgage and 
Defendant failed to cure the defaults within the time speellled In the nnUce. 

8. Plaintiff declares the full amount payable under the! Note and Mortgage to be 


now due. ; 

9, Defendan, JACQUELINE P. YULEE. owes Plaintiff $206,811.90 that la due on 
principal on the Note and Mortgage, together rrtlh Interest from December 1, 200B, late 
charges, title search expense for ascertaining necessary, parties to this action; and such other 
expenses as may be Incurred by Plaintiff to preserve and protect fljie properly or Plain 
rights in the properly Including, but not limited to. inspections, appraisals, boarding up or 

securing the property, changing locks, determining the existence U the amount of or paying 

any code enforcement or other ben, or the expenses Incurred in ajnldlng same; and, al costs 
«i,u. sendee „f nroccss, pubUoatlou of notice of Sale und sale associated with this foreclosure 


action, 

10. The interests of each Defendant arc subject, suhortate, and Inferior tc the 
right, title, interest, and lien of Plaintiffs Mortgage. ^ 



165 


11. The properly Is owned by Defendants), JACQUELINE P. YULEE, and Is In the 
possession of said Defendant(a) or unknown parties. 

12, Defendant, BRANDON CHASE HOMEOWNERS ASSOCIATION. INC. may claim 
some interest In the Property that is (he subject of this foreclosure action by virtue of a dalm of 
lien recorded in Ofllclal Records Book 14049. Psge 1492. 

13 Defendant, HSBC AUTO ACOOtlWTS INC., F/K/A 01 VA RECEIVABLES CORP. 
may claim some interest in the Properly lhat Is ttte subjeet of this fi«dosnre action by virtue 
of Final Judgments tecorded In OlBelal Records Book 9284, Page 2 139. and Official Records 
Book 9300, Page 173, 

14. Defendant. UNKNOWN SPOUSE OF JACQUEUNE YULEE. claim some 

interest In the Property that Is the subject of this foreclosure actlor by virtue of marital or 
homestead rights or other tnterest in the Property subject to the M ntgage. 

15 . in addition to the specific Inlentst alleged, each dcfeLdant named herein Is also 
named fur any other Interest said defendant may dalm or have, re, orded or unieoorded encept 
such Interests as may by statute be superior to the mortgage beJllf foreclosed or survive 
foreolosur# and sale of the property. 

16. InaddiUontolhe parties designated by name hereli . I 
are interested In this action and who may have or dalm some rtgh: . tlBe, Interest, or Hen In, to, 
or upon the real property or some part thereof described in the Mokgage. as the unknown 
spouse of any title holder in possession of the pmperty. as survlvh g spouse, heir, devisee, 
grantee, eredltor, and all others dalmlng hy. through, under, or aj alnst a deceased person, 
and the seveml and respecBvc unknown assigns, successors in Interest, trustees or other 
persons claiming by, through, under, or against, an, con«raUon, or other legal entlly named 
as a Defendant; and all claimants, persons or parties, natural or corporation, or whose exad 
legal status Is unknown, claiming under any of the above named or described Defendants; Ure 
names of each of such other parties are nntaown to the PlamtlllaLd after diligent Inquiry 
oumnt be ascertained. AH such persons are party Defendant to 1 his setfon by ffie name and 
description of UNKNOWN TENANTS AED OTHER UNKNOWN PAR TES. 

17. If a nsturtd person who is a defendant Is not at thiJ time a resident of this State, 
or If he or she coneesls hlmseH or herseH to avoid sendee of proceis. or if a Defendaiit other 
than a natund person does not malntoin an office to Bits Stole fo, the receipt of service of 

process, then each such Defendant Is alleged to be doing or to hrnle done business to this 

Stote ortooWtoortohaveownedpropertytothisStateortooth,rwlsehavehadBufflclent 

contoct within this State to give rise to the Interest aHeged above and to .subject said Defendant 
tn tho )nriRHir?t1on of tlus Court. 


thftre TTt^y be others who 



18. All condltlans precedent to the acceleration of the Note and to loteclosnre of the 
Mortgage have been perfatmed, have occurred, or have been waived, 

19. Plaintiff has retained the Golson Fdberbaum, PLLC In this action and is 
obligated to pay Its attorneys a reasonable tec for services In this action, as well as all costs of 
colleclion, all of which Plaintiff Is entitled to recover from Defendants under the Note and 
Mortgage, 

WHEREFORE. Plaintiff prays; 

That an accomiliug be had to determine the sums due Plaintiff under the Note and 
Mortgage, and If the sums are not paid within the time set by this court, that the property be 
sold to satisfy Plaintiffs claim, and If the proceeds of the sale are Insufficient to pay PlalntJffB 
claim that a Deaclenty Judgment be entered for the sum remaining unpaid against Ihe 
Defendant, JACgUELINE P, YULES, and that the estate of all Defendants and al persons 
claiming imder and through them since thcfllmg of the Notice of Us Pendens be fcrcclcsed. 

That this Court grant such other and ftirtber relief as the Court may deem Just, 


OOLSON FELBEBBADM, PIXC 


J M. odson, Esquire isrn mho, res unan 
t. Germain. Esquire n»BN 485558) 
t. Bear, Esquire |SPN2M5a. fwi 3C»«i2i 
R. Aguilar. Esquire ifcn wmbd 
J essica E. Conte, Esquire itbk bmim 
1230 South Myrtle Avenue, Suite 105 
Qeanvaler, FL 33756'3445 
Phone (727] 446-4B26 

fdm-n jtjic.t'ro’i 





Our Flic No.: A803720/AE 



167 



168 



Book 1150< PoBO 863 


Lender's address Is 

P. 0. BOX S137, DES MOlHES, lA SDOfrfllST 

L&nderisthemortflaBeBunderthlsSfecurliytnstnimeiil. , , 

(D) 'Tioti * means lh« promiaaoni note signed by Bonwar and dalad OCTOBER 31, »03 . 

The Note states IhBt Bariawer owes Lender TWO HUMORED 1HiRTEENT>WL!$A»0 

SEVEN HUNDRED FIFTY AND NO/IOD 

<U.S. $ plus irteresl. Borrower has promised to pay this debt in racuiar 

Periodic Payments end to pay the debt In lull not tolar than NOVEMBER 1, MBS , 

|E) Tropei^ means Hie property that is described below undar the heading Trsnsror or 
Rights in Ihe Properly.' 

IF) ■loan' means the debt evidenced by the Note, piun Interest, any prepayment charges 
.nd late diaries die under lire Mole. a.d ell sane, dee ander Ihi. Securlly hslnimnt, plus 
interest. ^ . n 

(B) “Hldir*' means all RIdefs la this Security Insimmont that are executed by Borrower. 
The following Riders ere to he executed by Borrower Ichock box as appllcablsj: 

n Adjustable Raw Rider □ Condominium Rider Home Rider 

r~1 Balloon Rider C3 Planned Unit Development Rider □ Family Rider 

□ VA Rider □ SiweeKly Payment Rider UJ Otherta) [specify] 

Prepayment Rider 

(H) •Applicable Law' means all controHln® appHcable federal, ctaie and local statutes, 
regulalions, ordinances and adminliirative rules and ordws (lhat have the effect of lew) as 
well as all applicable final, non*appealabl« Judlaal opinioae. 

<l) 'Commuidlr Awodtofan Dues, Fees, and AiKSfinento' means allbues, toes, 
aaeesaments and other chargee mat are impowd on Borrower or the Property by a 
condominium aieodatlon, homeownere assoctoiion or similar orpanizallon, 

(J1 'Etedronk Fundi Traealer' tneins any Iran^er of ftindi, other than a Irarsactlon 
originated by check, draft, or similar paper InslrumenL which is initiated through an 
electronic tenninal. Bleplionic inslrumenl. computer, or magneflc tape so as to order, 
instruct or authorize a financial inalitution to debit or creiil an account, Such term Includes, 
but is not limited to, polnl-of'Sele tranaters, automated tellw roacbine iraitaacllang, transfers 
initlsted bytelephone, wire iransfsrs, and automated deaiinghouse Iranstors. 

(K) "Escrow Itom^ means Ihoss iients that are descrijed in Section 3. 

(Lt 'Macaltaneous Proceeds' means any rompersafion. eetltement award of damages, or 
proceeds paid by any third party (other than inauniBW procaedt paid under the coverages 
described In Becbon S) fan (1) damage to, or deatrucllon ot, the Property; [11) conderanobon 
or olher taking of all or any part of tie Property; {Hi) conveyance In lieu of ojndemnation; or 
(iv) mlsrepresenteliotis of. or omissions es to. the value and/cr rondltlon of the Property- 
(M) *Mprtgagt instima'’ means insorsnce protectlap Lwider egeinst the nonpayment of, 
□r default on, the Loan. , , . 

IN) -Portodlc Paymmir means the reguierly scheduled amount due for (!) principal and 
interest under the Note, plus (II) any amounU under Section 3 of tWs Security Instrument. 


SFLld R«v IVIVW 


ri96S«ris 




FORM xno tm 



169 


Book 1150* P*"" ' 


JO) "RESPA' means tiie Real Eatate BelHement Procedure# Ad (12 U.B.C. Becllor 2601 e*; 
seq.) and Its implemenlInQ reguialian. Regulation X(24 C,F.R. Per 35®), as they ® 
omonded from lime to tme. or any addilional or wcxnssor leflislallon or regul^on that 
cwerns the same subject matlsr, Ac used In this Security hislrumant, •RESPA' refers tn all 
reqiiremenlB and restrictions that are imposed In reoerd to a 'federally related 
loan* even If the Loan does nol qualify as a fedsfaly related morlaaBe loan' under RESPA. 
(p) 'SuccMor In interest of Borrower' mesna any party that has uken lltle to the Propa^, 
whether or not that parly haa awumed Borrower'e abllflaltons ond« the Mole and/or this 
Security Insvumant 

TRANSFER OF RISHT6 IN THE PROPERTY 

This Security Inslrument secures to Lender (i) the rep^menl of the Loan, and all renawala, 
extensions and modificaliQns ofthe Note: and (ii) the pertotwant# of Borrower's ccmvenants 
end Bflreemente undar this Security Ineirument and the Hole. For tWs purpose, Bwrcwr 
does hareby mortgage, grant and convey to Lender, the lolbwinp deecribed property 
located in the Caunty of DUVAL 

fT)pe oTRecotaing Jurlidlatortl [Nam* of Reisrting iuiiidiciion): 

LEGAL DESCRIPTION 1$ ATTACHED HERETO AS SCIffl>UL£ 'A^ AND MADE A 
PART HEREOF, 


THIS IS A PURCHASE MONEY IMRTOAOE. 


Percel ID Number 

10909 BRANDON CHASE DRIVE 

iACKSOHVILL£ 

['Property Address'}: 


whidi currently has Ihs addreat of 
ISlreel] 

lOty], Florida 32218 [2p Coda] 


TOGETHER WITH all the improvemente now or herw^ar erected an die property, and 
ell easements, appurtenances, and Oxtures now' or hareatter a part of Ihe properly. Wl 
replacements and addtitons shall also be corned by ihie Becoiity InstnimenL All of the 
fareoaing Is referred lo in this Security- tnetninwni at the •Property.*' 




FMuaoto I'm 



170 


11504 P*9“ ■ 


=r.rr 

I3ESsst:'i;:ssriS:rr^ 

Inafumenl covering real propeny. fniiftnvB' 

UMiFCRM COVENANTS, Borrovw af'd Lendef covenant and agree ®® ' ■ 

this Securlly instrument ehall be made in msimmeiit Is 

«t N»7e or .t i»o« olhor locatloo as may ba OeiSaaloO by ' '" 'StmeU if Ihe 
ttoilee provisions in aectlon 1S, Lender may return any («ymenl ©r _, 

SE-SSSSiS-EfiS 

=;"5;-2S?lEit^«= 

Borrower nakes payroeni to bring the Loan current IfBonwer orbrmwer 

ESH5SSS;rSS«^ 

m. mraro a,.l-a. ^nd.r — ”.boroO 

the Note and this aecurity tnutrument or peitormmB the covenams ena u 

by IH. E«.pf a. otbomSM o.acrlbod l« tMs Sacll.b 2, 

=:rSS=S£S=".E« 

balance of the Kote. 


171 



If L.nd.r » p.ym.nt from Bomwpr f»r . dplinq™»l P=tiodl= wdted 

Includt! a sulfidanl amcunl to pay any Igk charga dap. IP* WMdt may * 

aalinquam paym.nl and tk. I.» akarga. » mare dian «■« ^rtodlc Paynant ,s 
Landar may apply any paymanl raaalved ffom to the mpayman »' f d 

Paymante If, and lo lha entenl fnid, aack paymaal can be paid In ^ 

Ihnt nay axcna. salat. aPnr th. paymnnl to nppllcd to dan lal MV™ 

Parlodlc Paymenla, inch sxcpas may pc nppliad Co any Into cknrpo J'"'- /V 

prapayinerib ahall Pa appliad dial to any prepayiaeat cbarjac and Hen a. daacrlPod 

'^“''Acy appllcalinii of paymaala, Inauraace praatoads. or Mlapallaaoona Prortocda lo 
principal pea under Itin Kdn cpnll nrt nidnnd o- poilpnne dm dan date, or change thn 
amounl, of Ihe Periodic Paj'iTiarls. o • j' Ctouito<*n«c 

a, Fonda lor Eaeroaa llama Borrower enall pay to uiaoar on Iba day Periodic 
are dee under the bole, anPI lire bole le p«d lo Ml. e ,mm 
peymenl ol amounte On. fen |a) laane and a..eear»n» and edhar 
pborlly oyer Idle Security Inatrumenl aa a llan or anaaimbninoe on Ihe P'OP'™ i 
la.eel.old paymnnla or grouad ranp. on the Propnaly. If nnyt Id ptommmB for W and a 
ineurane. ^dirod Py Lender under Bndlon 5; nnd (d) btoOgiW l"aPra"P ^ ' 

any or any aumn payapla py Borrower to LePdnr la lieu d tka paymanl ol blPtlBaoe 
Smee. p'ramlema’in aceordanc. wHk lb. Ptoaddon, d Sa^on '777"“ 

•Eaerow Perns' At odglnalian or al apy time doriag the tons d be ^n, Mnd" 
radulra that Cpmmunlly Aeaoplallp. Du«i, Paaa, aad B.3a?sbM 

serrato.r, and aocl. due., faaa and aaeasamants ahak be an 
nmmplly fornlab lo Landar all ndices d amoudla to Pa paid “M“' 

Lll pay lander the Funde fer EKrpw name ualeis 

pay Ike Fund, lor any or all Escrow Items, lender may manra Borrovar^s oHpation to pay 
to lander Funde tor on, or all Escrow ll«n. d may arnc.^aueb w.laar m»V « M " 
wfltlnE, In th. event of euch walyor, Bortownr aPall pay dPMy, 
fna amounts due tor any Eecirm Perns for wblcb paymanl d Fund! hnn I’M" ’"J’'™ "J 
Lender nnd If Lender tequirns, shall lurnleh to landar raempta evioanclns audi payment 
Sto auen L. pdlod aa Lender me, mqdlra. BornpwaFs oPIlgalton to n,.Le e.o^ 
payments and to provide receipla simll lor all purpoaee to deeraoc to Pa a 'Mananl and 
e memnnt oonleined in Iki. Sno.rily Indrpmnnt, a. Ito pn...» 7':', 

I, used In Beolion 1. If Borrowm 1. oPIlgalnd to W Esp"» ri« nleroVe 

walaer. nnd Borrower falls to pay Ik. amooet daa far an Sabd* 1“™' Sr„„Ta. 

h, rigkt. under Bedipn 9 and pay suck amouat and Bormwur sPall Ike. on pbllgatrt unda 
Beclion « to repay to lender any such amounl Landar rmqr revoko to. '"* 1 ’" ““ ™ , 

.11 Escrow Item. .1 any time Py . notice gi.mn In aocnrdnpo. =''7'" ’f ""J' “'™ ’“J 
mvnontion, Bdtnwnr ehnil pay to Lender all Fqnde, and In sunn amnunU, that are than 
rei^ulred under this Section 3. 

Lanfler uiey. Blanyflme, collect and hold Funds in an amount (a) surfictani to PBrm'1 
Lender to apply the Funds at the time specified under RE5PA. ai>d (b] nrt to 

amount a lender car require under RESPA. lender ahatl eufmate the amount of 
Funds due an the baaiii of current data and reasonable esflroaws of eiqtendltures of fut 
Escrow items or otharwlse in accordance «wWi ApplicaWe Law. 



172 



11504 P*ae 


Ths Funds shall be held Ir an inBllUrtlnn whose deposits are Insured by " 

depoills ar. >o hiursdl or In .«» Fedetal Hom. Lot" B”''- ' det^.ha'^^l not 

,□ pay tha Eacrow Hama no l.lar tHan tHa tma apaalHad 

pharoa Borowar ar HoMlns and applylno tl* Fnmia- »«““*' "ol iaa Pn^^ 
aaaouat, or veriMag lha Eseroa llama, onlaaa Landar gaya Botfaaer mlaraal on tla Fonda 
and Appliaahia Law parmila Lander to maKa aach a ba 

in wrltlro or Applioable Lsw requires Interesl to be paid on Bie Funds. Under sh^l nrt be 
requlrBij“» paJ^Borrawer any interest or earnings on ike Funfla. 

.Traa In varlling. hovraver, tHal Intaraal ahall Ba paid oa »a Funda, L»nnar « Bias 
Bormwar, wilhoul charga, an annanl iccoun»ng of tna Fnads aa 

If Iharn la a naiploa of Fonda held In escrow, aa dallBed ondar RESPA, Lander shall 
aonnunt 1o Borrower for fire aaeos Irinda In acpordaarm rdlUi RESPA H Ihere Is a ntomoa 
of Firnda nald In aarmw, aa dallnod ondar BEBPA Landar alrnl noldy B”"”*"' “ 3' 
by FIEBPA, and Borrower aball pay to Lander lira am^l ” ‘ era la a 

shorlage In accomance w» RE6PA, bat In no more man 12 monlhW P”"'™'* ” ^ ‘ 

dificloncy of Funds held in escrow, aa defined under RESPA, Under tha nWl^ 
as reqgirad by RESPA and Borrower .noil pay to landar me 
the deUcienay in aacordaniaa rdth RESPA bat In no morallian 12 monlhly 

upon p^enl in loll of all aiima secarod hylhla Security Inilramont, Landar ahall 
promptly refund to Sorrower any Funds held by Lender. 

4, Charow; Uew. Borrower ahaU pay all iwes. esseasmenls. rt^pes. 

Impositions anrIBuable to the Property which 

Inrtrumeni leawtiolcl payments or groond rente on the Prepeny. if er^. and Common^ 
AssSon OueTp-es and A««sreerts. if eny. To the .tdem that these Items are Escrow 
Items, Borrower shall pay Ihem In the manner provided in 8ed«n a. 

Borrower shall prompHV discharge any lien whinli has prlorlly °*f . 

inalrament nnleas Borrower (a) agrae. In wrlllng lo m. 

by the lien in a marrrar aaoaptaWa lo Landar. bat nrly ao Icarg u Bor iwar W penorm ng 
rucb agneament (bl contesin lha llao in goad Sim by. or dafairda "“Bif ° 

lha lien m. legal proceedirrga which in LandePa opinion opotala to pravant lire 
ol lha lien while thoaa proaoedlngs are panrBag. bol only ilnSir 

conclndad; or |c) aacnrea from me holder a lha Iren as aaro.rrran, ‘“JB* J 
sirbordinaring me lien to Ihls Sec.rilv instasment. * ‘'"’'F ‘"InrLendir 
Property la subjacl to a Ban which can rdtaln P-l“ 5: r" »' =^17 “"TwhlcTlha 
may gl.. Borrower s nollae Idantirylrrg Ih. Ben. Wdhin 1D “b*' “''f “ 

nolle, la given, Borrower shall aetialy me Ben or mhe one or rrrora oI1l>e actions 

uniar ,?a?mU'ra Borrower lo pay . ontotinr. ch.nil. mr a real aitata Ian yarilicahrm 
ard/or reporting service uaed by Lander in wanection with this Loan. 


SPIN HW OWII/OO 


pipttwn 


PBRM 3010 1/IH 


173 


Boat ItSM P*a« 


rdrJi"»"pL«“p^-C =»«"»■ *' 'rZmi 

iSHSSSS 

chprsp. PPPk tlpip tpmappipp- » si"*"' »•"»<’' occpr»l.ldi rnis^pn- 

pranylix«120PPbiP«rmln.«OBr«PlllPblro«>Pb<*l»"bBbfBDm>mr .p„l„ 

."-s.'s; 

S!£E=rr^r£~:Sr 

rssissss 

shall Pima Lenber as motljagaa and/ca ea an .TOBh* ioa» P X Borrwar aball 

ahall naniE Lendar aa morloagaa «»dJ 0 B as an addlbonnl loss pnyea. 

aa„dri:r:r™™si^q5^-SS:rr:^ 

rh^r:“hr.tr:p^:irsnd^ns:^^^^^^ 




8FUI7 .tr/ WlliW 


fig(7o(l( 


fORUJDlD 



174 


Book 11504 P'B' 


,h.ll oe u,«r..k=n prampi!,. L«»d« m„ dirf«.r» 

retPin.d w Bortpoer .hall ™1 ba paid oul <« Ilia maPraiioa pnjcreds and .hall ba to 
Slpail™ cr b™., II Ih. ratoratto or -pair I. p°I ■r°:?l“‘l> l“f ".!'rf,l‘. 
securltv would be be leaseneD. tbft insuranci procMdt ehal be bpplleu _« 
searad by Ihls Sewrliy InBirumenI, whetnar or not lh« .JTfw'il! ladioii 2 

Bdrmwar sudh inapr..c. proced. .hall bp PPPllad la to otor P™'" 

IIBorroBT abandon, to Pfoparty, Lppdermpyfia. ...liollala andwto 
inauranc. data and r.lal.d monara. If BPro"' toP™« «dlto » ^ 
notlca from bandar Ihpt to laaBranc. cardarbaa aHarad to aellto a rdaira, ton bandar y 

,rUdT,r.ra^Si-='r.r.T.rs‘:ss;^^^^^ 

i'rrri:^:“i=;rporrrrjr.a\^ 

Bpplloable to the ceveraije of the Property, Leoder may «« orlhi! 8eS tty 

to repair or rettore ihe Property or lo pay arrionaK unpaid under the Mote or this 8ecuriiy 

«tab»eh. and ui» the Propel as 8.^ 
principal res^ence wlthtfi 8D oays after the eKeeutt* of m * te 

i? it.i»r:to.ir«r - b.ypnp 

°°Tp™™ta Malaftaiarto tr«l Prafacda, .1 to PropaaW Ipipirtrto. Eorrotor abpl! 
not d'prtroy, dapfas’. » Impair to PrPKdy. alto w'rBor-^w.“r« 

valua dae to II. conditloa, Ualeaa If hr dalanplaap puraumf to Sealloa a rnai rap.. 

.r “ d in cannaalian ,ith damapa to. pr la. laklap f 7”''^ j,® .7;" Z 

r.ltoad cf Barrowar-s obllgrrSoa to to rtoaialmlrm <* am* rapmr or Proaarf y 

blder or il. apanl may m.ka raatonabla aatrimi uprrp and in.p.cllona at to Proparty. 
„ „ rrr.torbto"a.na=.’'b^ada, may toP^ tto Itodor »o™manto oajba 
Property. Lender shall give Borrower notice at the lime at or prior w s 
inspection specllying such reasonable cause. 


Sriai R(V 0»I1M 




FOUM XIIB 1101 


175 



Book 11504 P*Be S70 


8 BDirawir's Lam A»plleittaB. Borrower shall be In default If. durlnQ the Loan 
aoDllcatlan process Barmwer or any pertons or enlilies acUna al the ilrflctton of Borrower 

i.tomalion « .WemenU to Un«r (or lo pn>«Mo Loiitor «''' 

I, co.rr.cllol. «lto Iho Lo.n, Mattriol roffdacollMns 

reprsisnullont concemins Borroaifs orxopanoir of too Pnrpony «! Sorrowsfs poncip 

" tproloptio. of LMdii-i inmil la »» '"d “"f** 

Initratiioiit. If m Borrower (alls to perform fife corenanfa onif aaroemeete eonUmod re fWi 
3 »r!X»Utoe“ W ffrere la a l.«.l prcroodlaa llfto mlB«. alS"li;o="«» 
intarJla ftri Propartf aed/or rlglila rinoarlffls SaooriV^lfto^""' 

In bankriipfey, probate, for condeaieetfoe or forfeitor., for entoroomenl of a ™ ^ 

Lin prlL ever tola S.oarlt, Irratrontoel or to aatofte law. or » 

BoTOwer has abendoned the Prtperty. then Lender may do and pay * 

reaaoneble « appropriate to prolwd beodert Intereet i« »• ,h, pLam M 

Seeorlfy Inafrumeat, indpdint prolacllna and/or .aaeastna m 

8e"urtnfl and/or repairing the Property. Lender's achois can tndude, but are not ®- 
r»a in, . “.oma a.oormf by a llap wbiel. baa pnority ovar tola «•;' I W 

MPurfnt In court, and |c) payln, reaaonable attomeya' fees lo protect rla Intereet la to! 
p?Lrty and/or rlphla indar thia Sacaritl- laatmmanl, inctodm, P"™' ’’”1';” L 
bankropley proceadln, Saearing tna Proparty InclaOaa. ton la 

Propartv lo mala rapilra, cbaa»! locks, raplaee nr board up dooiB Pad ana^. dm® 
walSr ton pipaa, allraiaate building or otoor Mda »' L"r^'h?iLcS 9 Laadar 

liBVa ugilllesturnad on or oir. Aliaoogh Laador may «te aettta .J' 

Odea na navB lo do ao and la not under any duly ot ^ h th e sSfo" 

Lender Incurs ao liability fcr not taking any or all aoUana 

Any aiaounts dlaburaad by Lead.r under tola toollb. a La 

Boimwar secured by thia aaouitty Iniltument Tanas amoinls .ball bear Nereat a ire 
Le rate tarn to. La ol diaboraetnanl and sball be peyaHe, wlto eueb Inlaraat, upon 

notice from Lender to Banwer requeslinc peymont- 

irthla security Inatrvmant la on a l....buld, >»•" ^ 

pruvlaluns of lb. leaae. It Bottower acuuirea fas Site to the Props tbe leaaeboia and the 
fee tola shall nol marge unless Lender agrees to tbe margar In wrlOng. 

lb. Maltgiga Inauranea, If Lander recuired Moilgaga hiBurance as “ “"'’"J™ 
making the Loan, Bormwer abas pay toe premiunm reuaired to “f ’"' 

ineuranoe In ejeol. It, tor any reason, the Mortgage hautanea etwuraga ragui to by Letoar 
caaaaa to be availabl. irem tbe mongaga Insurer Ibal prsvlously P">t“^ 
and Borrower was required to make seperotely doaipeeled PBr"”"'’ ’“rLam ™e^, 

rmryLVuS i“7.rLrugr:.:..^^^^ 

ES 


SPUDS 


DVIi/M 


*I9B I of IB 


FORM mio 


Book 11504 P4«e a71 


d » k. ih 6fi»ri Lender will acc»pt u«e and ralflin these payments as b 

payment! la..t<l lit! pr.ml«i™ "t «“"»•»' Tr“'raZw. a t,"n-t.l«nilal.l. loaa 
I'enuitetl to maintain Mortflage insurance In elfecl, P _ .»mrrienEB kutth anv 
e B « until Lender's requiremenl to MorloaBe ln«ir«nc£ enfle 

Eirxs:r;r4;= .r s.-" 

certain ioasea il may incur il Borrower doa* not repay the loan as aareefl. Borrow 
‘'■^rr^^a^mSrtPalr total 0,14. 

lima, aaiJ may ontor Into aproommil. vrflh olhot f*™ ” “2^,0,, ,o ipe 

radao. los.a.. TP..o a,r..m.-tla ara on larm. ““ “““ “*J 

moopaga Iraaror ..fl ». ot!et mifr <“ “ f ” land, that tb. 

Jatranb... agroammits, Lardat, any pitrchy. r ottba k4l^ an^a Jaaimr, 
aay ralb.amt, any atba, antlty, or .«y aBlat. ,SSa7. M ^ 

taa laearar. lb. artabaamabt la a«aa tarmad a.pb™ ''^"”^^’’2 »r.ad to pay 
,., 40, aucb t„cE.:. 

roroizTr^irrto^ 17™!;:, -0 .o«^ 

rJrK=™:~^H=‘ErrHSs. 

unearned attte Ume of such canceUatton or temOnidcm. 


SFLia Sw »!'« 


r»Si ».f» 


fORM xxo inn 


177 


Book 11504 P«B» 6^2 


11, A»Hinit»nt ol f '"“•"I "I 

are hereby aaslgred to and ahall be paW to Lender. 

:„d r=.1.nnlon I. « .Insl. dl.b.r,.«.nt oi In . «n<. . pio|i™« “'"‘"“■V ' ’ 
EnmpMnil. Unl.ii >» ngreement Is mM. In -nlino 

be paid on aucb Miscnlleneoui Procenda, Inndnr shnll n® be lequiroo 10 pny » 1 

inlere.1 or norninj. on .neb Miienllaninint Proe.«B. 11 W renlnrallon or mpair In no 
.conomibnlly finilble or Londnr-s lecortiv nroiilil » lansoned, the Mucnllannonn 
rhell be appllod to Ihn siimt neodred by Ihl. Smarltir brntraninffi^nelher o n® 
nillb lb. errens, » "nV, PnM 'o 0orro«ar. Biicb Mlscllannoll. ProoD.il. Ihall be tqipll.i! 

t "rrnror/lnX^n^rrinlnrn. or Ion. I. ollb. Prop.rV, lb. 

Ml.oellaneons Prob.ods .ball be applied B «“">• "“"'“i I’ll 
whrrmer or nol Ibnn d »e, Mb the e«pa.e, II >ny. paid to Borr^eo 

In ini evanl o( a partial taklnl, daiimcIlDn. » lo.e » »al»' «• »“ Propoilylli wnicn in. 
lair ma bar valna ol Ibe Propany Immadlalely before the penlel laMns, 
n O® . ! Tuel to or graitar than lb. .monrrl of Hr. «im. s.par.d by Ibii Saonrlt, 
Innramwit iinm.di.l«ly baf®. lb. partial talies, aailrpcllon, or let. In «» "‘.“JJ"' 
Bornsrror and lander olherwlse epree in wlUnp. Hie >onii inoured by ftlJ Serarny 
Inimmnnl ahal! be ledbceri by the embunl pf Ibe “'“'“TSL Jmfal 
Idlowina Irardion; (e| the lotel amount rt 'dia anm. lacurad Immarl alaly balora the para 
taking, da.Inicaon, or loia In .alia divided by |b) Ira HI' "“'“I ^ 

Immerilalaly before the partial takina. destlucdtm. or lOH Ip voloB, Any balan e 

to Iho^ent of a partial laWng, doelrucdlorr, w tool in valuo rrt the Prop ally In which 
th. toir market ..lire dUe Property Immediately before die pertt.l 
iL In .nlee I. lean than Ihe enrounl ol Ihe einrr. ».nn.d Inpnediot.ly "el”' ' » M™ ' 
Lung, demrurtibn, nr loe. in value, unlaea Boriowarartd Lender 

the Miacellnniou. Proeead. .ball ba appliell 1o Ibo nimrn e.oured by Ini! See <1 

Intorumanlwhetborbrnollb. auminretbendue. , . , . , ihnt 

llinn proparty is nbandonad by Borrower, or it, aflor oolite by Lender to 

10 MiscellaneouB ProcBscls. 


FDHU X10 IVDI 


178 


Book llSOt 


Borrowar ahall be in defaull If any *01100 or proceeding, whethar civil or criminal.^ 
begun thal, in Lemur's ludgment. could rewll In Ibifaltui* of Ibe Pmporty or aher m^ne 
Impnlmonl of Lender's iritaiosl In the Property or tlgliB under Me SeouriB 
Borrower can euro Sboh n dofoull and, II accclorallpn Hat occurred, rolnstata “ " 

Seolloo ig, by oauilng the icllon or ptoceedlno to be dismleaed wffli a 
Lender's indornenL pracludes iorfelluro of the Ptopeity or oOiat itiaierlal Impalrinant d 
Lender's intereel in He Procns or nglito under Ms Secuilly bislnimenl, ^ 

any award or dal m lor damogen thel are dttnbataWe to tite iiepa™»t of Lendar'e Intaraat 

in ttiB Property ar« lieretiy asiign^d anb Shall t» paid to Unitor. 

All MIscallBneous Proceeds Ihat are no! applied 1 o reatoralion or repair oTlhe Property 

ahftll be applied ir the order provided far to SecUoft 2. c,u uw. 

M Bemwr Nol Reluud; Forbearance By Lender Hat a Wahra-. Exlenston of the time 
for peymeni or taodlfcation of emortizetioc of Ibe sume aocured by tins SeeurPy 
granted by Louder to Borrower or any Sucoeseoe in Intoeal of Bortowot ahell not “Pe™ ' “ 
releBae the liability of Borrower or any Bocooiaora m Intereel cl ' 

be requited to commeno. qroceeolngs against aaySoeceasor In imereO tf Borrower or to 
roluae to exlend lime br payeianl or olherwlue modlly amottrabon of the 
thli Becurity Inalrumonl by raaeon of any demand 

Seoceasora m Inieram of Borrower Any btbearaoce by Under In oierciaing eey right or 
remedy Includlog, wlthoul llmilation, 10*0608 eoooplaace of 

indilefi or Successors in Intaresl of Sorrwmr or in emopMs less iban the amourl than due, 
ihall nol be 0 waiver of or preclude the exerolot of any rtBbt or remeoy. .ornowar 

tg, joltrtrnidJaeetalUabllltyiCojIeaweiSuocaainiaandAaafgnaBoond. Bornmear 

cdvenants and agroos that Borrowere obllgatloa! and liaMBy abell f"'' 

However, any Beriower who oMigns thia Sacurlly btelieoiam but does not 
(a •co-sIgner-); (a) ie co-nlgnlng this Seoullty laeiraniam only lo mortgage, granl 
lleS^lgners Interee, in the Property 

pereonelly obligated lo pay Ihe some laeured by tbis Secuilty Inslyumenl, end (c) Miees 
h,“ ,i, e“d aey ob.; Bonower can agree to emend. modIV, 
aocommodalione wbh reganl to Ihe terms or Ms Secorlty InaramenI or the Note wilhout the 
co-signer's consent. . 

Subject to the provision of Section 1®. any Swwiior In lelBrest of Borrower who 
assumes Bcrrowei-s ohllpatlone tinder this Becurily Inatrumeal In wrlflns. end is “PPro'mJ 
by Under, ahell obtain all of Bcemwar'e rights and benollu undar “ 

Bormwar then not be reloasao from Borrowef-s obllgeluiee and liability under this Bucurlty 
Liniment nitioea Under agruee to seob relaeee Ie wtlbw “"VbJnlffl lU 

of thie Secairily Inelrumant shall bind (except as ptouMed ui Section !0) and behoIH lha 
successors and assionc of Lender. 

tA LoanChargea, Lender may charge Borrowar face tea aarvices partotmed In 

oonn.odon with Borrowar'e default br the perp»e of Lye' 

Prooorly end Hgllte under thl. S.ouriV Inelrumert. lauding, but not "“f 

faes, property Inspeclloh and valnation bee. In reoiid to 

expreee anihorlty In thie Seoertty Ineliumehl to c*erg. a epeclJe lee to Bef^f 

be mnmrued as a prohibition on Ihe charging el inch lee. Under mar eel charge feet that 

are expressly prohihMed by this Security (nsIromeRt or by AppHcaWe Law. 

FORM am D iffl 




179 



IMhs Lom h Sibiecl to • lo« -kioO >«« mtoOmoiii lom cOott'S. J 

inlorprettd so 1h«l tke Intorast or other lo.» diamm »Noa»0 » “ ko ' 

connocllon MIO the Loot eoceed the permllloO llttiib, «»n: (tj any f 

he redoced by the amount necotiary to rialhce the charge to ” Ig 

any some already collaelad from Borrowar which axceedad peimlttad llmhn wll ha 
to Borrower. Lendar may dioose to make this rehind hy redectno the prlitclpal 
the Note or by makinp a direct poymeril to Boirowoc. It a rahind reduces 
reduction wlil ha traatad as a partial prapayniem adlhom any prepayment 1*“" 

or not a prepayment charge le proeidoC (or under the Note). Boirowar s accwanra ol any 
such rotund made hy direct paymani Ip herrowcr will lonttIthtB a waivar of any right of 
acllor Borrowar might have arising djI of such overcharao. 

15, NcIlCM. All nolIcBs given hy Borrower or Leeds in conaertion 

Inatnimarrl must ha In wtltlng. AIV noltca to Bonower In connocllon i^lh lit a BecurW 

Inulrumem ahall he doamed lo hava haan Blven to torcwar whaa tea hod by Bml cJaj mh« 

or when aclutliy Oalwerad to Borrower's notice addrete If sari W 

any one Barrower lhail conalilulo nolice to all Borrowatt aalaaa Applicahla 

reguirao otharwiaa. The notice addntsa ahall h. the Propeny Addreis hnlaa. h»> 

deeignalad a subalitole Bolice addnaa by nolice to Laadet. Bonowwr ahall 

Lander of Bortowar'e change hf ahdraas. If Laadai apecHlas " '™=5'.ad™ ttolSh 

BoiTowar'a change pf addreaa. ten Bcrrewer ahall Ohiv report h J 

thhl ipecified oitKedora. Thdre may ha only one daignted “ 

SecoriW Initnimenl al any one time. Any notice In Loader ohall be gten Wr do Ivoiing It or 

nSipgThv Ural clL mall to Landefs addma otdled haroin unlea. Lante h. 

dLgna'ad anShir addraia by notice le Bor^. toy neOa lo “"“'f " 

aemlty Inalnimanl ahall not bo daemed to hava boon ghwli to Londot urill dteaW 

racalvad hy Lender, 11 any noline regulred by this Becarlty Inetement la 

andai Appllhable Law, the Aopllcahle Law leqhliwment vnil sahafy the cotreeponOing 

requirement itimler this fiecvrily bstrymert 

16, QownlBS L.WI BewnWlUfl Rule* ol CowbocBon. This Security Inelr^en shall 

he goyemed hy loderal law and the law ol the Iprladialon » whh* lha ProtoP/ h 1'“'^ 
All tlghla and obllgaaons cunlmnoU in this Bachtlty matiumanl ' 

regpiremards and llnitalions ol Appllcohia Law. Appllctea ^w might •kplldtiy or 

ailTO the panles ID agree oy contract or It might be tdlenl, but auch ellanca Bhail not be 
„“ruei 2 a prehihL against agta.ment byhontecl. In the ayeal tnm any prwlston u 
clausa ol ttila Bocurity Inatrumant or the Mole ctjanlcB teh Appltehle Uw 
shall not areci olher provisions of this SaoiHfy InsWitunl or the Hole wWsh con be glyan 
effect wlltiout the cmnicting provistor. h « arrt 

AS ueed in this Security lnstruniei.1: (a) wordsoflhe 
includ. ratirespondln. henler words or worha of te temhtln. genden |P 
Singular shall mean and Include the f^ural and wca versa: and (c) the word ms/ gives 
sole discretion wllhoul any obliaatior to take any 

17, Bdrrmaer-a Cdpy, Bonower shall ha gwea onecopyofte Note and of th» Bocurity 

Inalniment. 




5 FL 13 


Pl}i t3 cf 19 


poussna im 


180 



ia. W« o( n. prawiilr »r . m a.r^r, A. used 

Suction (1. 'InlureK In »» Piopnrty mnnnu «iiy lOBM or boMlldjI ml.ruit Ji the Pm^^, 
incMin. h«t rot limltud ta lho.e be.nfcl.l Weiuct. Iranufered ^ 

cMlract (Or rteeij, inslallment saloa rahltacl w ancrow aBreemeht, »a latent of xlilcli la ma 

transteroftllleby Borrower at a future dalatoa pufchftser. 

Kail or any jart of the Ptoparly or any Inlaraat In the Propeily la aold or Iransferrad 
(or if Borrower la not a natcral aoreon and a beitagdal eitereat hr Borroaer ri ao^ or 
trarralerred) wllhoiit Lender'a prior wrlttan arnaaol. Landar may roiiBlm Immadlata paym n 
Ih full ol all airma aocureo by ihia Sscirmy lailrumcnL ^ayer. Ihrs optron thall not b 
eiarclBBd hy bandar It auch aiterciao la pndilbhad by Appliimblo Lm. 

If bandar eaarclaaa Ihi. opiion, bandar ahall plva Bwroymr notIn. of ™' 

nodca ahall provid. a period o( not laaa than SO damt from the Plate the ^ " 

aceoadanca aaHth Sadion IS wllhin whir* Borrower moat pay at Mima aaeu ad Ijr « a 
Socrirltv Inilrtrmenb If Borrowar falla lo pay thaae aarma prior to tha er^piralion of Ihra 
period Urnder may laaoka any remedial parmlBed by tbil Secnnty Initnimant wlfhoilt 
further notice or demand on Borrower. 

IP Baerowatra Right to RalnaUlB Altar Accalaaadam. If Borrower moeta cerdaln 
conditlona. Borrower ihell bare the tiglir to hava aaforeamant of tore 
dlaitohtlnriad at any latte prior to the earlleel of (a) n«a days beloia aala 0 ^ the Property 
purauani lo any power of aale eontaineil In trla Secirrtty Inatromaat lb) “ 

ApollcaUe baw’ ralohl epeciV for the letmraatloa otBoarowaPb rtOM to ralnitalB, or (c) enw 
^r'a o7,m"..(SreM Ihl; Btoridly Ihamiment Tho« e*dit». 
pays bandar all aaini whicn Ihae would ha dua rmdar «»• '“.Tl 

as if no BesekfBlion had eeeurrad; (b) cures any ctefautt of any olhef sewanis w 
aBfaatnems; (c) pays all expanses incurretf in enforelna this tewliy 
bd not llmitad to, raaadrrabla attomayf taaa. proparw Irrt^b and ^ 

oibar Caat ineurred lor the purpose of prorectlnp bender's IbleraS m the 
under this Beeumy Inltrvmerb abd (d| tahei »cb acBob ae ? 

IP eaaure that Under's ibterast In the Property and rlghle '“‘“'k", j 

and Borrower's obligation lo pay the .am, ..carerl by Ibla 

eopgau. uaebangad. bendor moy require Ibol Borrow.! pjmeli ^ 

mrpanaai in one or more ol the lollowtog lorms, aa eeleiainl by timdar. lal caab, (b) """W 
S" (0 eersnad cbaek. bank cheek, t-eeapr.,'. check or e.sbi.r'a =b“ ■ P™' *' ^ 
aueb eher* la dmwn upon an Inetiluliob whoa, depprilts ere Inaurad by » 
instmiranlalilv or entity or M) Electronic Funds Transfer. Upon reinslatemMil by Bonwer, 
this Security festrumenl and oblioettors secured hereby SseTf 

acceleration had occurred. However, this rfeW to reinstate shall not apply In the cess of 
acceleratbn under Section IB. 

JO. Sal. of Rol.; Cbtoig. or bobb S«Yle.ri NaSoe of BrUyaboe. The Note or a partial 
intaraal m the Hole (top.lber wbb thb SermHly hMnimeldl erm be .old Orta «f 
wllhoul prior nolle, to Borrower. A sal. migbl re.alt m a ehmrp. hi 
"loan Servicer-) that tollerda Peitoilic Paymonia due under the Note JKl Soounly 
Initramebt end perlorma other morloago loan eanncmo obligaboni ander the bore, 


sail 


Mii7xe 


Pi;i <4 el It 


FORM X10 int 


181 



Book 11504 P*0B a7e 


this Sscurlty Insirumart, end Applicable Law. There dec might be cme or more chansas of 
the Loen Servlcar unrelaied to a sale of the Note. If there Is a change of the Loan SarvlceTi 
Borrower will be given wriller notice of the change which vdll state the name and address 
of tbs new Loan Barvicer, the addrete to which paymeniB eheuW b© msilB and any other 
information RESPA refluirea In oanneclton Mth s notice of transfer or servicing. If the Note 
is sold and thereeher the Loan ia serviced by a Loan Servicer other than the purchaser of 
the Note, the mortgage loan aarwdng ohlige^ons to Barmwer will remain i^h We Loan 
Servicer esr be transferred to s sucresaor Loan Servicer and are not assumed by Ihe Note 
purchaser unlasa crtherwlae provided by the Note puichaeai. 

Neither Borrower nor Lender may commence, loin, or b© )olned to any Judicial 
(as either an individual litigant or the member of a class) that arises from the other paiys 
actions pursuant to this Security Instrument or that alleges Ifial the other party has 
breached any provision of, or any duty owed by reaaja of. this Security InstrumenL until 
such Borrower or Lender has notified the other party (with such notice given in compliance 
with the requirements of Secllon IS) of such alleged breach and alftorded the other party 
hereto a reasonable period after the fliving of such nofice to take wrrectivc sctlor. If 
Applicable law provides a time period which muet elapee before certain action can be 
taken, that lima period wlB be deemed to ba reasonable for putposaa of fills 
The nollce of acceloratlan and opporiuniV » euro given to Bowowsr piireuanl 1o Section 22 
and the nollce of acceleration given to Borrower punuant to Section 1* shall be « 

satisfy the notice and opporlunHy to Uke corrective action provisions of Ibis Secllon 20. 

21, Haatrdaus SubetwicM, As used lit this Sechon 21: (a) 'Hezardous Substances' 
are those subeiances defined at loalc or hazardous wbatsnees. pollulanU, or wastes by 
Environmental Law and the followlno subeiances; gasoline, kerosene, oWsr nammsbie or 
toxic pelroleum products, toxic pealieidas sod heitieides. wlalile solvents, materials 
containing aabesios or fatmatdahyde. and radioactive materials: fb) 'Bnvironmenla! Law* 
means federal laws and laws of Ihc lurtsdldlon where the Pntoeily is located that relate to 
health, satety or environmental protection; (c) 'Enviromwntal Cleanup Includes eny 
response action, remedial action, or removal action, as dellned In Envlronmenlal Law and 
(d) an ‘Environmental Condillon' meane a condition that can esuse, contribute lo, or 
olherwlss trlggef Environment Oeanup. 

Borrower shall rot cause or pemiit Ihe presence, me. dlsposBl, storage, or release of 
any Herardous aubstances. or threaten lo releaee any Hazardous Substances, on or In Ihe 
Propeity, Borrower shall not do. nor allow anyone else lo do, anything affecting Ihe 
PropoftV (a) that is in vrolaliori of any Environmental Law. (b) which '^^alea an 
Environmental Condition, or (d which, due to the presence, use. or release of a Hazardous 
Substance craalas a condillon lhat adversely affecls the value of the Property. The 
preceding two sentences shall not apply tolhe presence, use, or storage on the Propel^ of 
email ousntiliee of Hazardous Subalances that are Banerslly rocognizad lo be 
normal residential uses and la maintenana ol Bk Prapeety Onduding, but not limited to. 
hazardous subetaricee in consumer products). 


SFLis sv,' «/iin» 


Pigt is I 


IfC 


FOfIMOPIS im 



Book IISO^ 


Borrower shall promptly oive Larder written nolice (a) fliiy tnvee1lBatl*i claim, 
demand, lawsuit or other action by any Bovemmeirtel or rfloultlory auency or private party 
Involvinfl the Preparty and any Hazardous Substance or Environmental Law of which 
Borrower has actual kncwlodoe, (b] any Enviroamontal Condiloo, Includlnp bat not limitad 
to, any spllllns, ieakins, discharaa. release or Ihreal of release ot any Hazardous Substance, 
end ic) ony cotidtlian caused by the presence, use or release of a Harardoua Substance 
which adversely aftects the value of me Propeny. If Borrower learns, or is notified by any 
Dovemmentai or roculatory aulhorily. or any private party, lhat any removal or ot^r 
remediation of any Hazerdoue Sobotance e/Tedinfl the Property Is necessary. Borrower shall 
promptly take all necessary remedial actions In accortance wllh Environmental Law. 
Nothing herein ahell crarte ary obligation ort Lender for an Environmental Cleanup. 

NON-UNIFORM COVENANja. Borrowar and Lender further covenant and agree as 
tollowi: 

22. Aecelentlon? Remedies, Lender ^il give node* to Borrower prior to acselmBon 
tollowlng Borrcweri breach ot any eovinial or agfwmtnl In this Sacartiy matrumant (but 
not prior to acceleration under Baction II ufdeis Apphcible Law provldai oBimatoa). Tyia 
nodes shall specify: (a) tho delauR; (b) the aetlott roqulrod l» «ra (he dataalt (e) a date, 
not IMS than 30 day* from the dale the noteo la given le Borrower, by whi* 
must be curod; aad (dj ttart fallm to ant the delault on or berfoie the date tporilied In the 
notlca may reauK In icceleratten of the ovms sacurod by this BeturHy InMniment, 
loraetesun byludlclal prtteaedirts P«P«rtV. The nofce shall hirtliB- Worm 

Borrower of fts rtght to relnotate srftor lectlaralon and i»e right to aerort In tha tor^aiwro 
procMdlhB the Bon-aHaamei of a stefault or any other ctetenee of Boorowar to accsIoroUon 
and foradoauta, II the dofiuH la nof euiwd orr or bafora (he date ipodtted In * 1 # 

Londar ai Its option may roquirt immadlate payment In full of all surae aoeured by oils 
Beeurtty iMtrumwt wWiout lurthar demand and roty loraeioae this Beewily IniOumenI bf 
(udkial proctodinfl, Lmidor shill be eaWid to coltecf all •xpenaas Incarred In puraulufl the 
romadloa prorMed In this Seeflon 22, Indudinfl. but not Ilinltod to. rMsonible attoroeyi' tool 
and costi of (Hie cndenca. 

3^ Releaae. Upon paymanl of all eums aeeurad by Bits secialiy Irstromoni, Lender 
shall relearo this Socurlly Inslroment Borruwar shall pay any recordation costs, Lerrder 
may charge Borrower a fee for relaSBlng this BecorKy instrument, but only If the Fee is paid 
to a third party for services rendered and the charging erf the fee Is permitted under 
Applicable Law. 

24. Attorney*’ Faro. As used In this Security Instnimenl and the Note, attornsys fes 
shall Include those awarded by ar appellate court and any attorneys' few Incurred In a 
bankruptcy proceedins. 

25, Jury Trill Walrer. The Borrowsr hereby waives any right to a trial by Jury In any 
aclion, pfoceBdlng, claim, or CDumerclaim. whadrar In contract or tort, at law or In aqulty, 
arieing out of or in any way relaled to this Securihi Inslnimerrt ortfie Nolo. 


SFLK Riv 


P191 


penutoio 



183 



184 




185 




186 


r 





11504 P«Q« afll 


PREPAYMENT RIDER 


THIS PREPAYM0JT RIDER is fiiflOe this ...3J3t day of ...Q.?5XPMR SAW,.... , 

and Is incorporated Into and shall be deemed to amend atKl supplemsm the Mortgage, 
Deed of Trust nr Security Deed (the 'Security iDStrument*) of the same date given by fbe 

undersigned Ithe 'Borrower^ to secure Borrower's Note to 



of the aame date and covering tfie Properly deaalbed In the Security Instrument and 

locateci at: 

(Property Address} 

PREPAYMENT C0V6MANTS. Ir addition to the eovenenU and agreementt 
mode In the Seevrity Irwtrument, Borrower ar»d Lender lurlher Boverant end agree as 
folloiis; 

I hiM U» rtoW t» mate pa/menll ot prlnaptl Pt m "'I"* 

A prepwment of a[l o( the urpoM prindpol l> knodP ^ ' P'oPW'A'ff * 
pre^^ont P< only pnri nl thn unpild prindpnl lo known an n 'partial propoymont. 

Empt on provlOnd bnlow, I may mok. • ..'“'I ^ Vn"",' 

propnyninl ol any time wlllioot paying any Howwr, " 

SWpZ.- (..2..) yeerts) after the eiecutlon of the Sicurlty Inalryment I make lull 
prepayment, I will pay a prepaymant change In an amount equal to the parent of ala 
(8) months' adranca intireat, at the Intorait rate ^ !,!J? ^-inrinJl 

amount prepaid which Is in axeesa of twenty percent (2«%) of the original principal 
amount. 


CO, CT, QE, PL.G,k,HI, ID, IK, KY, (PflOal OTa) 

MA, ME, MT, NO, N£, NH, NV, KV, OK, PA, 8C, 8D. TH, T3t in, Wft. WVl EC1S0L Raif. CWMAD 



187 



188 


Book XISO'* P*»" 


PLANNED UNIT DEVELOPMENT RIDER 

THIS PLANNED UNIT DEVEDOPAENT KIDElt k made lliis October 3L 2003, and k iccoipatoted bio and 
staU be deoced to amend nnd aupplement the Moetgage, Deed rfTnet. arSccnaib/Deeil (the 

sanK daiE, given b> the BodetHgaed (!hs "BorroweiO to Beciuc Borrowei's Note D WELLS FARGO HO.Stb 
MORTGAGE, INC, (the "Lauder") of tke aame <t*.B eui covetiltg Ae PropeiO^ iJeserijed m die Seemity Insmnneni and 
located at: 

10909 BRANDON CHASE DR,l*clttoii»fl!a,nor1da 32219 
(Property Adifccss) 

The ProDsny inclutfcs, but is not limited te, a panel ofl»Bd in^mwed with a dweiluig, togalber with other aueh porecls anii 
eckib common anae and ftcilibce, u deaenbed in 55. 15. 13A.13G, Pbtlllc tenda of Biaval Caannl}, (the 
■Declamion"). The Fropeny is a put of a planned mit development known as 

BRANDON CHASE 
of Planced UatDovckipriieiiO 

(As -PUD") The Prtwrtj' also inehides Boirowet’s intwesl inihe hDnieoiimoaasK*hat» or equiviieni entity owning or 
nanaglng Ae r oTn,>vtr inaa lod Aeiiities of Ae PUD (d* 'Owiiers Asaociarkm*) and Ae lUes, benefits and proceeds of 
BotTOwer’a Aieren. 

PUD COVENANTB, In addition B Ae eovenams and apeements raatie in the Security Instncieri, Botiower and 
lisadetfiinbec covenant and agree I! follows: _ 

A. PUD Ohl|iiloiii. Borrower sM perfoon ill 0 . Boirewer's obligWiOtu under A. PUD 6 
Conadfuent Doegnmts. The "CaorttiBot Qoamenu" aie Ae (i) Deeluiticn; (ii) 
lcaaa:poratl«n, auit asttumsac or any equivalent docuuKot which cMiet the Onws Asaoeiatloo; ard 
(lii) any by-laws or ottier niler or repilitionj of Ae Owntrs AssociotioD. Bonowei shaU proJopUy pay, 

whrtduc.elidueaandesMsiiwnBinpoiedjWBBaDttoAeCoBMtaeiiiDocunintt. 

6. Property Iniuranee. So long ts titeOwnon Aasocialiofl madnauu. with e geoeraJjy aweptw 
iBsaiance earlier, i "naiw" or "alaniet" potiayinairiBgtheTreperiywttehu iitiafaetoo' » lAnder airf 
which nrevide! mauranee eovwige b fee anoonls (ineludiag dedutlfcie levels), for Qae penwM, end 
aeainst lou by fir., haaaids included wiAin toe leiin "enended eoveisge," and any other hmr(fe. 
i^i«. bu? not liBiled to, ecthqoalas and flood*, for which Lenrfcr requiiea iiuuiiise, ibra: (0 
Lender waives ihc pttnislaa in Section 3 for the Periodic Paytneai to Lento of Ae ywriy pcwiuum 
iulalbwnts hr proeeity liwuincB on Ac Pwpsrty, end (K) Beoowtr’! obligalnca nniier S^oc 5 to 
ottiittim prapecty inaniuce coverage on the Plftcpc^- la deemed satitrsd to to wtemt tot to toquued 

covengejaptoviiedbytoOwnnjAssTOBdonpoliey. 

■Wbet LMidw wpits as a coiuBtitm of this waiver can dangc during loe wm of to 
Bonower shall giVB Lmdr prompt oohee of lU)- lepw in K^licd premo^ iwuranas coverage provided 
bvAcmBSteiorblanketpolicy. 

b me event of ft discibutioa of propeiV uBurencs proeesds m bar of letBntmn a repair 
fbHowiDg a loss ID to Property, or to comman webs and facMes of to IVP. any pioceeda pij^ble to 
Borrower are heiAy isiigned and shall be peid to Lender. LeKki toB m\/ proces^ to to sum* 
secured by Ae Becutiiy InsmitirEt, wbeAsr or not then due, wlft Ae wcess, if iny, paid lo 0 o^er. 

C. Public Linbillty Iiiiur*ii«. Bonovier toll inks aicb acrioio as may be reasoneble ID nsiire 
Aat to Dwdcis AHOcialion maintato a public liabiBy iosniancepolicy aecepiable m form, araoimt, and 
extent of ceverage to Lender. 

D. CondemDallon. Tne proceeda of any award or ctoim fw daroage*, direct or ccnscquennal, 
payable to Borrower in connecdoii with any e^cimuiliOB « lAhci aking of all or any J»rl of to 
^ty or to eoDtnon areas and fecilfties of to PUD. or for any coaveyuiee in heu of CDodennilron, 
are hereby assigned and chali be paid h Lendeu Such proceeds shoB be applied by Lender to to suras 

aeCBrsdbytoStcun'IylcstiuiDerttasprovidedmSectimill. _ 

E. Lender’* Prior ConeenL Borrowei shall wL except ttenotiec to Lender and with Lender s 
pricr wriaen eonssnl. citor parndm or subdiwdr the Viopeay or ooeseni to: (f) to abandornneim or 

MULTISTATE PUD RIDER-Strab Fs^Ily-Fanni, M.WPmAfie M« LKIFOWI INSTHUMEVr Far- 3110 tflll t 




lenniiution of the PUD, sUEpt for alsandoiinisni or tennntmi nquiied by hw in the cis: of subsUndal 
dettmctioD by fbe or oba MiuAltyarin tbc cue oft takkgby condnnniuion or eroinam domin; (ii) 
any ansodoKat to any provision of lbs "ConitituestDocnmu" if the provision is for tbs express beoefit 
of Lenisr; (iii) iainiiutio]i of profcssionol franagsraeni end usuroptori of self-tiuMgeineol of the 
Owners Assoeiaiion; or (iv) iny actian wbkh wooK have die ofFo^ of reodering the public liabili^ 
insuitcce coveiage maintmed by Ihs OiMien Associolioo untccepiablc lo lender. 

F.Heinedta, If Borrower doss not pay PUD does and as8csln>snU when due, tbec Lender nuy 
pey ihBia Any amounts disbursed by Lender under this pna^apb F duli hecoir^ addilioiiel debt of 
Bonwer recured by the Seeutily Imtrement Unless Bonower and Lander agree to nlbar tenro of 
paynunt, tbese ociaunu shall bear intacst froiu ihe dale of didxnein^t ti the Note rase and shell be 
payable, witb interest, upon notice ftom Lender mBoRorwricqimiiig payment 






190 


, rxivot oa--><- 6iaoH oV ‘?OdijM 
■ ■ * 


FIXED RATC NOTE 


JACtCaOMMLIP 


lOaOB BR AM&OM CHASE DRlVe. JAgt<Rr»ii\/[ [ IP pi aw«q 


1. BORROWER'S PROMISE TO PAY 

Inrstum tor a loan thal I have received, I prumisetn * 213,750.00 (this amount Is 

called 'Prlnciparj, plus interest, to the order of the Lender. The Lender Is 

wen P PARcn woMg MgpTQAee iNr 

) will make all payrnerrts under this Note In the farm of cash, check or mone/ order. 

I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note 
by transfer and who Is entitled to receive peymente under this Note is called the 'Mote Holdar." 

2. INTEREST 

Interest will be charged on unpaid principal untlf the hill amount of Principal has been paid. I 
will pey Interert at a yearly rate of 7,375 %. 

The Interert rsrte required by thia Section 2 is the rate I will pay both belore and after any default 
deicilbad In fiedton 3{B} of this Note. 


3. PAYMENTS 

(A} Time and Place of Pa/oienta 

I will pay principal and interest by maktno a payment eveiy month. 

I will make my monthly payment on the flf?t day of each month beplnnlng on DECEMBER 1. 2003 
I will make these payments avery month until I have paid all of the principal and inleresi and 
any other charges described below that I may owe under Ihle No«. Each monthly payment will be 
applied as of Its scheduled due date end will be applied to interest before Principal. 

If, on NOVEMBER t, 2083 , 1 still owe amounts under this Note. I »^li pay those ampume in full 

on that dale, which le called the 'Maturity Dale.' 

I win make my monthly paymonta at WELLS FARGO HiadE MORTBAOE. INC. 

^■Q._HCIX 10804, DE3 MOINES, lA S0M6-O3IX 

or at a different place if required by the Note Holder. ~ 

(B) Atnounl af Monthly Payments 

My monthly payment will be in the amount of U.S. $ 1.47S.32 


4. SORROWER'S RIGHT TO PREPAY 

I have the rlphtto make payments of Principal at anytime before they are due. A payment of 
Principal only Is known aa e 'Prepayment' When l maim a Prepayment, I will tell the Note Holder In 
wtllinfl that I am doing ae. 1 may not dealpnate a payment as a Prepayment If 1 have not made all 
the monthly payments due under the Note. 

I may make a full Prepayment or partial Prepayments vrithout paying a Prepaymant charge. The 
Note Holder will use all of my PrepoymBtifs to reduce the amount of Principai dtat I owe under this 
Note. However, the Note Holder may apply my Prapaymentto the acouad and unpaid intaresl on 
the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the 
Note. If I make a partial PrepaymenL there will be no changes In tha due data or in the amount of 
my monthly payment unless the Note Holder agrees In writing to those changes. 


trflW>rUIMniMCWIIF3MI nSTMMiVT 


mm 


nef.unim 



HULIUTATEnxrc 


1««s 



191 


S. LOAN CHARGES 

P.rmltt«, «r»tt,Xni S '"= '“" "’" ■ 

the charfle to the permitted Ifmlt- ishri /Kt .!^ c ®fnoun1 necesea^ta reduce 

the Principal i owe under Ihle Note or bv m^Mnn reduclnij 

tKp ™Pui WIN b. <” ™' «‘ -bPP". ™„clp„, 

e. BORROWHH'S FAILURE TO FAY AS REQUIRED 

(A) Lpte Charge far Ovardue Paymanta 


arnouiil of the chana wi7rh!I '* l^rav!!^ ® J®* charflft to the Note Holder, ,,.v 


(B) Daffluli 

in do not pay Bis Ml arppum of end, mpnOily paymam m 1h. data It la duo, I will he In default. 

(C) NoUoe of Default 

“"‘'me a Wfleit notice telling ne that tfl do not nay the 
amount of P^ela/i me to ps/ Immediately the full 

d^t^rSu? rrifi/aRTS^l T *" a^Lm. That 

rtherTeens ^ dellyerad by 

(D} No Waiver By Nate Holder 

I®* COFtP "Pd eaf«nita 

■ssissssssa,. 

7. aiVINO OF NOTICES 

“ dlllpfpnt mathcal, pay aoSpa that muit ba pivaa tp m. undarthb 

- 1 “”' =f ">7 dUft^m addra.a. 

“"IppT'Ip Nota win be (Ivan by dalltarrinp it or by 
d"S . IS" N““«f ■HbPFddi.aP atatad h, sSpllpn a(A) Zla or « a 

oifrerenf address Iff am giver a nofce ofthet different address. 

8. OBLIGATIONS OF PERSONS UNDER TWS NOTB 

rmmhaa°r.dHMhut,; '"i' ^“a'' 'L* “ '“"7 7"'“"»"7 ^ k»PP »« of 

ikas h^l J^n’’ f eleo obligated to do these things. Any pereon who 

Note Is Blai abfln^fi!‘’r’ ebiICBlions of a guarantor, surely cr endorser of this 

Ho rflal! *‘«P ■!' of the premises made In this Note. The Note Holder mey enforce 

Its rights under thU Note egelnsl each person indhAdually or against all of us tooether. This 
maana that any one of us may be required to pay all of the amounts owed under thle Note 
8. WAIVERS 

‘’®® obligation* under tnla Note waive the rights of Presentment 
QBvrnenft?n?nfi« f"^®F'ir J'®*"**® ''OWto require the Note Holder to demand 

payment of amounts due. "HalicB of Dishonor means flia it^t to rsqulrs the Note Holder to 
give notice to other persons that emaunts due have not been paid. 

MULTItUre FK£I> NOTi* MnfhFmllr , nnWTMitO WHFoilM WBTmiMWT FCKM Ett0 1101 





192 



1 a UNIFORM SECURED NOTE 0133533348 

'Saeurity Inslmtns/iri dated yie same dale « thu orTruel or SBcirrfty Deed (the 

which miflht result if I do not keep the Bromlsee vvhJdJ?mS“^hi^*id!?® Possible losses 

descrbes how and under what conditiorwi t m*./ k SB=Uftly Instrument 

smountothat I owe under this Note. Some oftLeSon^aTdUS^ 


ir borrower Is note natura oaraor aiid a T»» i: V oriransterred (or 

tranarerreo) without Landar^rviSr 5lSif« Interest In Borrower Is Bold or 

jrojrah ? Mfl A'ftu diJ'hpS^ o' »“«l»r«tton, The nollce 


•<i. documentary tax 

The .tale docamenary « d.e o„ ,h., (to,e h,e p.id „„ ,he ™„rtaeoe »euri„B 1hl. Indabtedne,,. 


WITMESS THE HAND(8) AND SEAL(3} OF THE UN0ERai^4B). 


fSl 0 n Original Only] 



t^ntcuTFsoouHae 

fWrOTHBOflSWOF 



wwi IK. trmw, 

Vic* President 


aoi£. AfiiSnitr • niwAiuieutmiui unmwEKr 

SilS 




193 



<Prap«jrmajit) 


ru.c. 0133S63M6 

)s iff-- ..?9°3 

Soto ai this Addardum, to fbtni a pari of tho Note dated ftii iame 

!• Stcaoit I 
">•« paymanfo at prinel 


» of prlndpahaUny flme batere ifey'SS aJl* 1 

prinelpal ia hnawn at * */,,« T * P^P^ywenf of all 

•Id principal I. know,, „ . '!,a«la™^av„.it'™'’“''™"' 

IW»ymMtVtMy*umavSfctpa™^anj 

..raw.... (_i}.,) jraard) attar the ^ lowterar, It within tlia flrat 

prapaymant, I will pay a prawiimicnt ehar?« ?“ SauPdly Initnimant I make hill 
»' m teontha' X'rKt after, ' 117 "?“"' " *''» W"™! 

Note, on ttia amount prwpald which li te I? ° Prasldaii for under the 

•rtulnal ptindpcl anicunt l«™>n< of the 


ramato Inli ll’ter;.'’™^^ "i" “I’dh.npad by ,h|s Addendom and 


Datad:. 




_^fSeaI) 

-Sorrower 


Prap«yniut Mdendum 

(AL, AZ, CA, CQ, CT. DE. FL, SA, HI, ID, IH, KV, 

MA, ME, MT, Nfl, NE, NH, NV, tfV, OK, PA 9C, SD, TN, TX, UT. WA Wfl 


E0151L dev. UAB/aS 



194 


EXHIBIT 2 


IN THB CIRCUrT COURT, FOURTH 

JUDICIAL crRcurr, in and for 

DUVAL COUNTY, FLORIDA 

CASE NO.: 16-2002-CA-445Z 
DIVISION: CV-E 

THE CHASE MANHATTAN BANK, 

AS TRUSTEE OF IMC HOME EQUITY ’ 

LOAN TRUST 1998-1 UNDER THE 
POOLING AND SERVICING AGREEMENT 
DATED AS OF MARCH 1, 1998, 

Plain.tifC'Coimter Defendant, 


vs. 

LILLIE BELL BARNUM, aka ULLIE B. BARNUM, et al, 
Defendanis/Counter Plaintifis, 


vs. 

FAIRBANKS CAPITAL CORPORATION, 

Third P arty Defendant 

/ 

ORDER GRANTING DEFENDANTS/COUNTER PLAINTIFFS' 

MOTION TO AMEND COUNTERCLAIM TO PLEAD PUNITIVE DAMAGES 

This matter U before the Court on the Bamums' Motion to Amend Counterclaim to Assert 

a Claim for Punitive Damages and Proffer in Siq^ort Ttereof against Counter Defendant Chase 

Manhattan Bank (Chase) and Third Party Defendant Fairbanks Capital Coip. (Fairbanks). On 

July 14, 2004, and again on November 2, 2004, diis Court held hearings at which theparties 

presented their arguments to the Court. Upon consideration of the motion, and the infonnation 

and arguments submitted by the parties, the Court finds the motion should be granted. 

I. Introduction 

DsfBDdants/CoTOterPlamtifS Lillie BellBamum Md Eunice Branm (the "Bamums") seek 

leave to amend tMr couniemlaim against Chase and Fairbanks to add a claim for punitive d 

pursuant to section 768.72, Florida Statutes. The statute states in pertinent part: 



195 


(1) In any civil action, ao claim for punitive damages snail be permitted unless there 
is a reasonable showing by evidence in the record or proffered by the claimant which 
would provide a reasonable basis for recovery of such damages' The claimant may 
move to amend her or bie complaint to assert a claim for punitive damages as 
allowed by the rules of civil procedure. 

(2) A defendant may be held liable for punitive damages only if the trier of fact, 
based on clear and convincing evidence, finds that the defendant was personally 
guilty of intentional misconduct or gross negligence. As used in this section, tiie 
tenn: 


(b) "Gross negligence" means that die defendant's conduct was so . . . wanting 
in care that it constituted a conscious disregard or indifference to the . . . rights of 
persons exposed to such conduct} 

(Emphasis supplied.) 

The standard for pleading punitive damages under section 768.72 was described in 
State ofWisconsmInwestmeniBoardy. Planiaiion Square Assoc., 761 F. Supp. 1569, 1580 
(S.D. Fla. 1991) {citing Will v. Systems Eng'g Consultants, 554 So. 2d 591, 592 (Fla. 3d 
DCA 19S9)) as follows: 

[A] § 768.72 challenge more closely resembles a motion to dismiss that additionally 
requires anevideatiaryproffer and places the burden ofpersuasion on foe plaintiff. 
• In considering a motion to dismiss, foctual adjudication is mappropri,ate as all facts 
asserted — or here, reasonably established — by the plaintiff are to betaken as true. 

*** 

As such, the court has given recognitioni only to those asEertions of the defendants 
which would show Plaintiffs factual bases to be patently talse cr iirelevant, and has 
paid no heed whatsoever lo the defeidants' altemative evidentiary proffers. 


‘ The statute also defines “intentional cooducf’ as a basis for m award of punitive 
damages; however, at the November 2, 2004 hearing, the parties agreed that only "gross 
negligence" as defined in § 768.72(2) is at issue here. 


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196 


761 F. Supp, at 15S0-81 (citations omitled).^ 

Thus, the Bammns' proffer of evidence in support of their matioa to amend must be taken 
as true, in the same maimer in which allegations of a complaint are taken as true in considering a 
morion to dismiss, except where the Bamums' proffer may be shown to be patently false or 
in-elevsnt. The Court’s task then is to determine if the f^ts shown by the proffer meet the statutory 
requirements for liability for punitive damages. 

n. THE PROFFER 

In support of their motion, the Bamume' proffer the following facts: 

a. On or about June 20, 2003. Chase, through its loan servicing agent, 

Fairbanks, filed aMortgage Foreclosure Complaint naming the Bamums, among others, as party 
dafendants. In its Complaint, Chase alleged it was the owner and holder of the Note and 
Mortg^ entitled to foreclosure because of non-payments beginning April 1, 2002. 

b. Prior to the filing of the Complaint, tiie Bamums had conesponded with 
Fairbanks and its predecessor, Citifinancial Mortgage Company (Citifiriancial}, concerning an 
alleged lapse in the homeowner’ s insurance required by fhe mortgage, the placement by the 
lenders of forced insurance, and their claim for reimbursement for the premium on the forced 
insurance. B5n).uni5 asserted that an escrow account had been set up for their particular mortgage 


hi Holmes v. Bridgestone/Firestone, Jnc., 2004 WL 2726 131 (Fla. 4^^ DCA November 24, 
2004) the court reiterated the analogy of §768.72 challen^ and a motion to dismiss, stating, 
“...where die only issue is whether proferred facts would support punitive damages, the 

analysis...is similar to detarnining if a con^laint states a cause of action, which is a qu^tion of 
law.” TheFourthDistrictwentontohold^tinthat case, the profferreflected facts which, if 
true, would support punitive damages; therefore, it reversed the trial court’s denial of plaintiffs 
motion to amend to seek punitive damages. 


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197 


and that the escrow account should be responsible for payment of the homeowner's insurance 
coverage required by the mortgage. (Chase Manhattan/Fairbanks dispute whether on escrow 
account should have been created; but since the Court cannot find that Barnuins’ contention is 
patently false, it is accepted as true for the purpose of flicir motion to amend.) Throughout this 
dispute, the Bamums continued to pay the eame monthly amount, S369.20, which was routinely 
accepted by Chase through its sendcing agents, including Fairbanks, 

c. In August 200 1 Bamums wrote to Anne Clemens, Supervisor of ServicBs for 

Fairbanks and to Danielle Loweiy, Supervisor of Consumti’ Services for F aiibanks registering 

their frustration that the charge for forced place insurance was still being assessed against them, 

notwithstanding their sending evidence of the coverage claimed to have been lapsed, and 

demanding that their account be rectified, b turn, Fairbanks, through Mary Halpin, Research 

Specialist, wrote to Lillie Bamum on September 4, 2001, stating, in parti 

“Thank you for the recent coitespondencs regarding your mortgage 
loan. We are researching this matter and will contact you via mail 
with a resolution as soon as possible. Wc appreciate you bringing 
this matter to our attention.” 

On October 24, 2O01,£uniceBarauin wrote to Ms, Halpin again summarizing the Bamums* 
position and documenting the near-constant collections telephone calls from Fairbanks, the efforts 
to strai^tsn out the problems, and the continumg difficulty in having Fairbanks respond to contact 
by the Bamums. 

d. Fairbanks then followed its September 4, 2001, letter with correspondence of 

December 10, 2001, stating, in part: 

“This letter is to notify you an adjustment was made to your 
monthlypayment The new aroouot of i«iur payment is $269.20 
and vriU be effective as of 09-01-01. This adjustment was made • 


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198 


due to removing the collection, for insurance.” 

B The next Pairhantrs issued correspondence of Decembei 11, 

2001, Mpaoncd ‘-demand letter - YOU COULD LOSE YOUR HOME” rad drairading. of 
w amount due rad owing of 51,205.59, As noted above, the Bainums were then sued in June, 

2002. 

f. On July 1 1 , 2002, m employee of Fairbanks, Andrea Rempfer, executed an Affidavit 
as to Amounts Due and Owing,, in which Ms. Rempfet testified she was ‘'...familiar mih the 
books of account and have examined all books, records, and documents kept by Fairbanks 
Capital Corp. conceming the transactions alleged in the Complaint”, and fitriher, that The 
books, records, and doountsnts which Affiant has examined are in the custody, supervision and 
control of Affiant, and are complete, accurate and correct.” The affidavit was Bled with this 
Court m support of Chase’s motion for smnmaiy judgment of foreclosure. 

g. Ms. Rempfer was deposed on August 29, Z003, and confLmed, in sum: 

1. she did not personally review any of the original books, records, and 
documents niantadned by Fairbanks as these items were, in fact, kept in a 
different department in a different state and not forwarded to her, and only 
reviewed a computer screen whicdi documented the loan history; 

2. she was not provided the complete loan history, even via computer screen, as 
her instructions WM’e to review only the three months preceding the a3idavit; 

3. the loan history, in total, did not reflect any eiTort by Fairbanks to correct the 
loan amount in acc?ordwith the Fairbanks letter of December 10,2001, which 
purported to adjust the payment amount to $269.20; 


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199 


4. if she had 156811 . gjven the opportunity or instruction to review the complete 

]oanhlstory,mcludingtiieadjasfmcntIetteTofDecember 10,2001, shewould 
not have completed her Affidavit. 

h. With regard to whether the Barmuns were actually behind in their monthly payments 
of S369.20 as of the date of Ms, Rsmpfer’s Affidavit, the Court is aware of an additional factuaj 
dispute, namely, that the Baraums take the position they were instnicted by a Faiihanks’ 
representative notio make apayment duringfhespring of 2002. Again, the Court is bound to accept 
Bamum's proffer as to feis to be true for the purposes of this modoa, and notes that, while no written 
documentation exists in the record confirming this instruction, the Fairbanks documentation of 

correspondence and contact is woefully inadequate, roissmg, for example, anydocucnentatiou of their 

o^vn letter of December 10, 2001, referenced above. The Bamuros have, in their proffer, also 
provided numerous references to Fairbanks’ violations of its own manuals and procedures with 
respect to actions which should have been takOT in response to contacts by the Bamums. 

i. On Febwaiy 1 1, 2003, fourteen months after Fairbanks confirmed, In writing, that 
forced placed coverage would be removed and the Bamums were due a refund, Chase Manhattan 
filed its Notice of Voluntary Case Dismissal. 

in. Discussion 

As previously noted, it is now the task of the Court to detEcrmineif the facts shown by the 
proffer meet the statutoiy requirements for liability for punitive damages, a task which would 
have been much simpler were thexs Florida cases cited to the Court allowing or disallowing such 
damages in similar situations. In almost all of tiie punitive damages cases cited by both parties, 
the tnalisiouB prosecution claims involved arrest and radminal prosecution. None dealt with 


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200 


wrongful mortgage foreclosures, which is the subject of theBaruum’s comter claim. 

Nevertheless the Court was able to locateauumberofcases from other jurisdictions which 

allowed recovery of punitive damages in actions for wTongfiii foreclosure. See, e.g. National 
Mlg. Co. V. TOIiomr, SSf So.2d 934 (Miss. .978); Cooper v. Cooper. 783 A.2d 430 (Vt. 2001); . 

Curl V. First Federal Saoings & Loan Assn., 243 Ga. 842, 843-844(2), Deoafur Investments Co. 

V. McWimarns,, 290 S.E.2d 526 (Ga. App. 1982); Tower Financial Services. Inc. v. Smith. 423 
S.E.2d 257, (Ga. App. 1992). Thus, the nsiure of Baraum’s counterlcaim does not preclude a 
claim for punitive damages. 

The Court concludes that there is a rcascmahle showing hy evidence proffered which 
would provide a rsasoDable basis forrecovery of punitive damages, and that e jury could 
reasonably find that Counter Defendants’ conduct was so wanting in care that it constituted a 
conscious disregard or indifierence to the limits of theBamums. Tnus the requirements of 
Sections 7SS.72(1) as to amcndmsnts and 768.72(2)(b) as to gross negligence havebeen 
satisfied. ^ 

The facts from the proffer, if true, indicate an ongoing battle between the Bamums and 
Counter Defendants over the issue of forced placed insurance covering several years, a history of 
telephone calls frequently uranswered, correspondence not acknowledged, and of Counter 
and in Pennsylvania not knowing wbat their right band in Utah was doing, 
illustrated by their letter of December 10, 2001, acknowledging the removal of 
the charge for forced placed insurance and reduction of Bamum’s payment, followed by a default 
notice the very next day. In their brief in si^port of their proposed order denying the motion to 
amend, Counter Defisridants acknowledged tiiat the December 1 0, 2001, letter originated from 


Defendant's left i 
The latter point i 


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201 


thrir u.^ o£n.e, while Decsn.be. 11 . 2001, lerte. nrigm^tcd from te foxacl 0 .hrc 
.epen^nentbPameylveri. SimxMy.Pefrbanta' employee, Andre. Rempfex, fr. Penneylvenia. 

executed an affidavit, -filed with *eCcmt.note. in which she attested tot she was 

■■...faznilfe with the books of account and have examined' all books, records, and documents kept 
by Fairbanks Capital Cotp. concerning the transaotions aUeged in the Complaint", and further, 
that "The books, records, and documents whieh Affiant has examined me in the custody, 
supervision and control of Affiant, and are complete, aeeurate and eotreet," Her deposihon, 
however, established that her affidavit was not based on all the books, recoids and documents, all 
of which were in Utah, but on a computer screen showing the Bamum’s record for the three 
months preceding the execution of the affidavit In fact, she then had nb knowledge of all the 
Tscords pertaraing to the Baniums. AJl these instances, in the context of the totality of the 
evidence proffered, can reasonable be viewed as indicating a pattern of such a want of care and 
indifference to the rights of the Bamums as to constitute “gross negligence” under Section 


768.72(2)(b). 

Of course, these conclusions are premised on the acceptance of the proffer as true, which 
is required of the Court, although the Court is aware that much of 6e evidence is disputed. What 
a jury may find, afier hearing all of die evidence is anoGier matter. 

An issue was raised as to which of the five counts of the Counterclaim the claim for 
damages would apply. ^ The Court concludes that while it is unclear whether the Fair Debt 

^ The Counts of the Counterclaim are: 

Count It Abuse ofprocBss, as to both Chase Manhattan and Fairbanks; 

Count U: Fair Debt Coflection Practices Act, as to Fairbanlts; 

Count HT: Consumer Collection Practices Act, as to both Chase Manhattan and 
Fairbanks^ 

Count IV: Breach of Contract, as to Chase Manhattan; and 

Count V: Malicious Prosecution, as to bodi Chase Manhattan and Fairbanks. 


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202 


Collectioa Practices Act will support a claim for punitive damages. See^ Thomas v. Pierce, 
Hamilton and Stem, Inc,, 967 F.Supp. 507 (N-D. Ga. 1997), and punitive damages are generally 
not recoverable for abreach of contract action^ See Ghodroti v. Miami Paneling Corp., 770 So.2d 
181 (Fla. DCA2000), punitive damages are recoverable under the malicious litigation and 
abuse of process counts, see, e.g., Alcano Reni-A-Car v. Mancusi, 632 So.2d 1352 (Fla. I994)aiid 
under the count for violation of the Florida Consumer Collection Practices Act, (“The court may, 
in its discretion, award punitive damages * t Section 559.77(1), Florida Statutes. 

It is, therefore, ORDERED AND ADJUDGED: 

1. Defendants/Counter Plaintifis EUNICE and LILLIE BELL BARKUM’ S Motion to 
Amend their Complaint to Assert a Claim ftir Punitive Damages is GRANTED. Defendants/ 
Counter Plaintiffs are granted leave to ajnend their Counterclaim accordingly within twenty (20) 
days of the dace of this Order. Defendants/Counter Plaintiff are granted leave of Court to 
propound punitive damages discov^ to C3iase Manhattan and Fairbanks forthwith. 

2. Chase Manhartan and Ft^baaks shall have twenty (20) days from receipt of the 


amended Counterclaim within which to file re^onsive pleadings. 

DONE AND ORDERED, in Chainb»s, at Jacksonville, Duval County, Florida, on 
December 28, 2004, 


Copies 


to: 


James A. Kowalski, Jr., Esq. 
Michael Duncan, Esq. 
William J. Scott, Esq. 


BERNARD NACHMAN, Circuit Judge 


0®S?BnERHJ 

0£c 2 8 200+ 

^SeaWRO NACHMW 


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203 


EXHIBIT 3 


IN THE CIRCUIT COURT OF THE 
FOtJRTH JUDICIAL CIRCLTT, IN AND 
FOR DUVAL COUNTY, FLORIDA 

CASE NO: 16-2004-CA-5879 

DIVISION: CV-F 


AMERICAN RESIDENTIAL EQUITIES, 
XXXl, LLC, 

Plaintiff, 


JOHN C. KOHN, JR.; DEMETRJA L. 

KOHN, et al.. 

Defendants, 

! 

ORDER GRANTING DEFENDANTS^ AMENDED MOTION FOR SUMMARY 
JUDGMENT. MOTION TO STRIKE AFFn)A\TT OF STEVEN BRAND AND 
MOTION TO STRIKE NOTICE OF HEARING AND 
DENYING PLAINTIFF’S MOTION TO CONTINUE HEARING 

THIS CAUSE came on to be heard before the Court on August 14, 2007 on the 

follovdng Motions: (1) Defendants’ Amended Motion for Summary Judgment; (2) 

Defendant’s Motion to Strike AiBdavit of Steve Brand; (3) Plaintiffs Motion to Continue 

Hearing and Notice of Same; and (4) Defendants’ Motion to Sfidke Notice of Hearing and 

Objection to Motion to Continue Hearing on Defoidants’ Motion for Summary 

Judgment. The Court has cemsidered the pleadings, heard arguments of counsel, and is 

otherwise fully advised in the premises. The Court finds as follows: 

1. This mortgage foreclosure action was commenced in September, 2004 

with the filing of a mortgage foreclosure complaint and Notice of Lis Pendens by 

MTGLQ INVESTORS, LLP, the predecessor in interest to current Plaintiff AMERICAN 






204 


RESIDENTIAL EQUITIES, XXXXI, LLC (ARE). The Defendants, JOHN and 
DEMETRIA KOHN, moved for summary judgment arguing neither MTGLQ nor ARE 
owned the Note and Mortgage wh^ the action was commoiced. In response thereto, 

ARE filed die Affidavit of Steven Brand, an employee of the originating lender, First 
NLC Services, LLC, (First NLC) in which Mr. Brand maintained that while no legal 
assignment was made by First NLC to MTGLQ, an equitable assignment occurred prior 
to the foreclosure being riled and that this equitable assignment was supported by 
consideration. 

2. At deposition, Mr. Brand admitted, in cootrast to the statements made in 
his Affidavit, that he had no personal knowledge as to whether the Note and Mortgage 
were sold to MTGLQ or whether any consideration was paid by MTGLQ to First NLC, 
and also admitted he had no knowledge as to whether tlie loan documents were physically 
transferred to MTGLQ. Rather, Mr. Brand testified First NI.C sold the Note and 
Mortgage to Goldman Sachs, an entity not before the Court Mr. Brand’s deposition 
testimony confumed his Affidavit was not based upon personal knowledge and 
confirmed he was not competent to testify to the matters slated therein, as required by 
Rule 1.510 (e), Florida Rules of Civil Procedure. Accordingly, Mr. Brand’s Affidavit as 
offered by Plaintiff is properly stricken by the Court. 

3. Since no evidence was offered confirming an equitable assignment 
occuned, the only legal assigiimait giving standing to cither MTGLQ or ARE is the 
assignment from First NLC to ARE dated December 14, 2004, and recorded at Book 
12248, Page 1243 of the Official Records of Duval County, a date after the 
commencement of this action. 


2 



205 


4. Based upon the record evidence before the Court, neither ARE nor 
MTGLQ had standing when the action was co mme nced and there are no genuine issues 
of material fact. The KOI INS are therefore entitied to Suininar>' Final Judgment as a 
matter of law. Jeff-Raw. Jacobson. 566 So.2d885 (FJa. 4* DCA 1991B; W.M. Specialty 
Mortgage. LLC v. Salomon. 874 So.2d 680 (Fla. 4"' DCA 2004). 

5. The Court has conadered Plaintiffs Motion to Continue and Defendants' 
Objection-to Motion to Continue, and finds -tins action hta been pending, at the time of 
hearing, for almost three years. While Plaintiff asks for more time, arguing it has issued 
subpoenas attempting to locate more information demonstrating it had standing to sue 
Defendants, the Court notes almost two montiishave passed at the time of hearing since 
Plaintiff was aware its own Affiant, Mr. Brand, confirmed tiie originating lender did not 
seD the subject Note and Mortgage to MTGLQ, as alleged in the affidavit, but to a non- 
party, Goldman Sachs. Notiiing w'as submitted by Pl^tiff indicating what evidence it 
hoped to find in discovery that would otherwise contradict testimony offered by its 
Affiant, or that this evidence would be material on the issue of standing. Defendants’ 
Amended Motion for Summary Judgment was therefore properly considered by the 
Court. ^ Colbv V. Ellis. 562 So.2d .^56 (Fla. 2d DCA 1990). 

It is, tiierefore, ORDERED AND ADJUDGED: 

1 . Defendants’ Amended Motion for Summary Judgment is GRANTED and 
Siunmary Final Judgment is hereby entered in favor of Defendants. Plaintiff ARE shall 
take notiling by this action, and the Defendants shall go hence without day. 

2. Defendants’ Motion to Strike Affidavit of Steven BRAND is GRANTED. 


3 



206 


3. Plaintiff’s Motion to Continue Hearing on Defendants’ Motion for 
Summary Judgment is DENIED. Defendants’ Motion to Strike Notice of Heai'ing and 
Objection to Motion to Continue Hearii^ on Defendants’ Motion for Summary Judgment 

is GRANTED. 

DONE AND ORDERED in Chambers, at Jacksonville, Duval County, this 

day of October, 2007. ORDER ENTERED 

OCt-l..e-2{!0?-- 

Circuit Court Judge 


Copies to: 

James A, Kowalski, Jr., Esq. 

12627 San Jose Blvd., Suite 203 
Jacksonville, FL 32223 

Laura J. Boeckmaxi, Esq. 

8787 Baypine Road, Suite 255 
JacksonviUe, FL 32256 

Clay Holtsinger, Esq. 

1505 Nonh Florida Ave. 

P.O.Box 800 
Tampa, FL 33601-0800 

Lashunda Lamiece Alexander 
382 S.W. Lightwood Place 
Fort White, FL 32038 

Edward Alexander 
382 S.W. Lightwood Place 
Fort White, FL 32038 

Joseph F. Duszlak, Esq. 

Attorney Ad Litem for Essie J. Hill, Jr. 
348 E. Adams St. 

Jacksonville, FL 32202 


4 



Fred Franklin, Esq. 

1301 RiverplaceBlvd.j Suite 1500 
Jacksonville, FL 32207 

Elizabeth Wellbome, Esq. 

1701 Hillsboro Blvd., Suite 307 
Deeidield Beach, FL 33442 



IN THE CIRCUIT COURT OF THE 
4TH JUDICIAL CIRCUIT, IN AND 
FOR DUVAL COUNTY, FLORIDA 
CASE NO. 16-2004-CA-5879 
DIV: CV-F 

AMERICAN RESIDENTIAL EQUITIES, 

XXXI, LLC, 

Plaintiff, 

V . 




JOHN C. KOHN. JR.; DEMETRIA L. 
KOHN, et al . , 

Defendants . 


/ 


AMERICAN RESIDENTIAL EQUITIES, 
XXXI, LLC, 

Plaintiff , 

V . 


TICOR TITLE INSURANCE COMPANY OF 
FLORIDA f/k/a AMERICAN PIONEER TITLE 
INSURANCE COMPANY, MTGLQ INVESTORS, 
LLC, and OCWEN FEDERAL BANK, FSB, 
Defendants . 


./ 


888 S.E. 3rd. Avenue 
Suite 201 

Fort Lauderdale, Florida 
June 19, 2007 
1:04 p.m. 

DEPOSITION OF STEVEN R. BRAND 

Taken before Lynda Royer, R.P.R. and 
Notary Public in and for the State of Florida at 
Large, pursuant to Notice of Taking Deposition filed 
in the above cause. 


U.S. Legal Support 
954 - 463-2933 




209 


13 


1 

Can you trace tlie connection, between 

2 

Goldman Sachs Mortgage and MTGLQ? 

3 

A Okay. No, other than it must be an 

4 

affiliated company of Goldman Sachs. We deal only 

5 

with the main investor, but each sale may go to 

6 

different affiliated coit^anies, servicing companies. 

7 

I mean, I’m not aware about how that works on an 

8 

individual sales basis. 

9 

Q Well, then why on paragraph three of your 

10 

affidavit would you have written MTGLQ Investors, as 

11 

opposed to Goldman Sachs Mortgage which the document 

12 

indicates? 

13 

A I did not research that part . That was 

14 

added into the document. I presume again that must 

15 

be the name of the affiliated company to which this 

IS 

loan, pool of loans were sold to. 

17 

Q Well, did you participate in the research 

18 

that linked MTGLQ to GSM? 

19 

A No. My research was on the dates only. 

20 

Q Then why would you swear to the truth of 

21 

paragraph three? 

22 

A Again, I’m not familiar with all the 

23 

different affiliated coitpanies with which -- 

24 

servicing companies to which each sales transaction 

25 

goes to. That is executed by our legal department, 


UrS* Legal Support 
954 - 463-2933 




210 


14 


1 ■ 

and again that could have been the one related to 

2 

that sale. 

3 

Q You relied on somebody else with regard to 

A 

paragraph three; is that true? 

b 

A Correct . 

6 

Q Was the affidavit produced or drafted by 

7 

your legal department? 

8 

A Yes . 

9 

Q Did you review each paragraph before you 

10 

signed it? 

11 

A I reviewed the dates that I had submitted 

12 

as information that I had provided to this affidavit, 

13 

yes . 

14 

Q So you reviewed the spreadsheet, for 

15 

example. Exhibit 3, you provided some date material 

16 

to the legal department, and then the legal 

17 

department drafted an affidavit that they then sent 

18 

back to you for signature? 

19 

A That ’ s correct . 

20 

Q Do you know who in the legal department 

21 

drafted Exhibit 2? 

22 

A Yes. I believe it was Susan Fishman. 

23 

Q Do you have Ms. Fishman's last name 

2f\ 

spelling? 

2b 

A F-I-S-H-M-A-N. 


U.S. Legal Support 
954-463-2933 



211 


EXHIBIT 4 


IN THE CIRCUIT COURT OF THE 
SE\^TH JUDICIAL COURT IN AND 
FOR ST. JOHNS COUNTY, FLORIDA 

CASENO.: CA09-0418 

DIVISION: 55 

M&TBANK, 

Plaintiff, 

vs. 

LISA D. SMITH ayk/a LISA DAVIS 
SMITH, et. al., 

Defendants. 

ORDER GRANTING DEFENDANTS* MOTION TO DISMISS SECOND 
.AMENDED COMPLAINT WITH PREJUDICE 

THIS CAUSE came before tiie Court on Defendants’ Motion to Dismiss Second 

Amended Complaint with Prejudice. Defendants ai'gue Plaintiffs Complaint and exhibits 

demonstrate a lack of standing and a fraud upon tlie Court, because Plaintiff has abandoned its 

prior claims that (1) Plaintiff is the owner of the Promissory Note and entitled to enforce the 

Note, but has lost the Note, and (2) PlainlifT now has possession of the Note and is currently the 

owner of the Promissory Note by virtue of an Assignment from an entity that had already 

transferred the Note. By contrast. Plaintiff now claims that it is the servicer of the loan, and that 

Wells Fargo owns the Note pursuant to the Allonge to the Promissory Note. The Court has 

reviewed the pleadings, considered arguments of counsel, and being otherwise fully advised in 

the premises finds as follows: 

The instant action was filed by the Law Offices of Marshall C. Watson, on behalf 
of the Plaintiff, M & T Bank, on February 10, 2009. On April 23, 2009, the Defendants, Lisa 
Davis Smith and Larry Smith, moved to dismiss the Complaint, because the Plaintiffs allegation 





212 


that it owned the Note as bearer paper based on. an Allonge attached to the Note convening 
possession of the Note in blank, was inconsistent with the Plaintiff s allegation the Note was lost. 
On September 22, 2009, an Order Granting Defendants’ Motion to Dismiss was entered. 
Plaintiff then filed an Amended Complaint on S^tember 22, 2009, alleging that it owned tlie 
Note' by virtue of an Assignment. On October 6, 2009, the Defendants again moved to dismiss 
tlie Amended Complaint, because a foreclosure action cannot be based on an Assignment of a 
mortgage which did not exist at the time the foreclosure was filed. On February 19, 2010, an 
Ordei- Granting Defendant’s Motion to Dismiss Amended Complaint was entered. On March 3, 
2010, Plaintiff filed a Second Amended Complaint, alleging that it is now the sendeer of the 
loan, and that Wells Fargo owns the Note pursuant to the Allonge to the Promissory Note, The 
Defendants then moved to dismiss the Second Amended Complaint on March 9, 2010, for &aud 
upon the Court because: (1) tite previously blank Allonge to the Note now contains a stamp 
indicating Wells Fargo, National Association as Trustee, to be the payee of the Note, (2) First 
Nationsd Bank of Nevada could not have added the stamp, since the FDIC closed the First 
National Bank of Nevada in 2008, and (3) Plaintiff is now alleging that Wells Fargo owns the 
Note, contradicting all of its pitevious claims. Defendants’ Motion to Dismiss Second Amended 
Complaint 'witli Prejudice is currently before the Court. 

Upon review of Defendants’ motion, tlie Court finds the Plaintiff lacks standing 
and is not a proper party to the suit. The Court has been misled by the Plaintiff fiom the 
begimdng. In the initial Complaint, the Plaintiff alleged it owned the Note that was lost. 1 hen 
Plaintiff alleged that not only was the lost Note found, but that Plaintiff actually owned the Note 
by Assignment. After both of these Complmnts were dismissed. Plaintiff then alleged that Wells 
Fargo owned the Note, while the Plaintiff was merely a sen'icer of the loan. Moreover, the 


2 



213 


Assignment on whicli Plaintiff relied in. its First Amended Complaint postdates the filing of tins 
foreclosure action and is inconsistait with the Mortgage, Note, stamps allegedly affixed to the 
Note, and the Allonge. The blank stamp affixed to the Note and the Allonge indicate a transfer 
from First Bank Mortgage, a division of First Bank of Georgia, to First National Bank of 
Nevada, and then to an unidentified bearer. In contrast, lire Assignment indicates a transfer from 
First Bank Mortgage, by and through Mortgage Electronic Rwording Systems, directly to the 
Plaintiff. However, First Bank Mortgage had transferred possession of tlie Note to First National 
BanJ< of Nevada prior to the date of Assignment from First Bank Mortgage to PlaintilY, and the 
Assignment postdates the filing of the foreclosure action. Accordingly, this action will be 
dismissed with prejudice as to M & T Bank, since M & T Bank lias been unable to clarify how it 
owns the Note, but Wells Fargo may commence a new action, on its own, if it is in fact the 
owner of the Note. 

Additionally, the Court is concerned witii the authenticity of the documents filed. 
Plaiiitiff is asldng the Court to ignore the documents filed in the first two Complaints, and to rule 
solely on the most recent Complaint. However, all three of these documents appear to be 
inconsistent with one another and have changed as needed to benefit tlie Plaintiff. For instance, 
the blank Allonge as filed ou both February 10, 2009, and September 22, 2009, remurkably 
turned into a stamped Allonge on March 3, 2010, with Wells Fargo's infonnation in the 
previously blank area. This transformation is most interesting, given that it was argued that the 
Office of the Comptioller of the Currency closed the First National Bank of Nevada on July 25, 
2008, and the stamp did not %pear in either of the Febmari' or September 2009 filings. 
Similarly, Assignments appeared and vanished as needed, and the Allonge changed to fit the 
Plaintiffs particular purpose at that moment Accordingly, an evidentiary hearing will be held to 


3 



214 


detemiine the authenticity of the Allonge and the appearance of the Assignment. 

Rule 4-3.3(a)(l) of the Rules Regulating the Florida Bar provides that “[a] lawyer 
shall not knowingly make a false statement of fact or law to a tribunal or fail to correct a false 
statement of material fact or law previously made to the tribunal by the lawyer.” As officers of 
tlie Court, attorneys should ensure the facts they represent and contained in their motions filed 
before the Court are correct and accurate. The Court has not yet had an evidentiary hearing to 
determine whether the various actions in this case were intentional efforts to misdirect the Court, 
or simply tlie result of inariftil legal work, and therefore, the Court cannot yet determme whether 
sanctions should be imposed. However, this issue will be clarified at the evidentiary hearing. 
Accordingly, it is: 

OEJDERED AND AD JUDGED that: 

1. The instant cause of action, M &T San/c v. Lisa D. Smith, et al., St. Johns 
County case number CA09-0418, is and the same is hereby DISMISSED PREJUDICE. 
(However, this order shall not prevent a proper plaintiff, possibly Wells Fargo, from bringing a 
new action on the Mortgage and Note.) 

2. The Court reserves jurisdiction to determine the amount of fees and costs, If 
any, to which Defendants are entitled upon tile filing of a motion and a hearing on the m after. 

3. An evidentiary hearing is heieby scheduled for Thursday, August 19, 2010, 
at 1:45 p.m, in Room 305 of the Richard 0. Watson Judicial Center, 4010 Lewis Speedway, St. 
Augustine, Florida 32084, to determine why the Allonge has changed from blank to specific, 
why tlie Assignment appeared and then disappeared, and whether sanctions should be imposed 
against the Plaintiff and/or Plaintiffs counsel in this action, and Ihe Comt specifically reserves 
jurisdiction to consider this matter. 


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DONE AND ORDERED in Chambers, hi St. Johns Coimty, St. Augustine, 


Florida, this day of June, 2010. 


Conformed Copy 


Copies to: 

Shari N. Hines, Esquire 
1800 N.W. 49“' Steet, Suite 120 
Fort Lauderdale, FL 33309 


J. MICHjSEC 

CircESlS Cotist Judgg 


James A. Kowalski, Jr., Esquire 
12627 San Jose Boulevaa'd, Suite 203 
Jacksonville, FL 32223 



ATTENTION: PP.RSONSW1THDISABIL1TIES: 

In accordance ^vitb the .American* DlsaWlittcs Act, if you are a person with a dijabSiity who needs any 
aceoinniodatian in order to participate in Ctiis proceeding, you are entitled, at no tost to you, 10 the provision of certnm assistance. Please 
ccutact the Office of the Deputy Court Administrator. <>04-827-561? not later than wo (2) days prior to the proceeding. If you are 
bearing or voice impaired, call 1-800«955^7T. 


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IN THE CIRCUIT COURT, SEVENTH 
JUDICIAL CIRCUIT, IN AND FOR 
ST. JOHNS COUNTY, FLORIDA 


CASE NO.: 55-2009-CA-00041B 


5 M&T BANK, 


6 Plaintiff, 

1 vs . 

S LISA D. SMITH a/k/a LISA DAVIS 

SMITH; JANICE BROWN; JOHN VONASEK; 


9 UNKNOWN SPOUSE OF LISA D. SMITH 
a/k/a LISA DAVIS SMITH; DNKKOKN 


10 

TENANT (S); UNKNOWNS TENANT (S) IN 

POSSESSION OF THE SUBJECT PROPERTY, 

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Defendants. 

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/ 

13 

TRANSCRIPT OF PROCEEDINGS 

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DATE TAKEN: June 2, 2010 

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TIME: 9:15 a.m. 

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PLACE: Richard 0. Watson Judicial Center 

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4010 Lewis Speedway 

St. Augustine, Florida 320B4 

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BEFORE: HONORABLE J. MICHAEL TRAYNOR 

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Circuit Judge 

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This cause came on to be heard at the time and 

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place aforesaid, when and where the following 

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proceedings were stenographically reported by: 

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Canaan L. Gaetanos 


Florida Professional Reporter 

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Coastal Court Reporters, LLC 


3940 Lewis Speedway, Suite 2102 

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St. Augustine, FL 


(904) 824-3525 


CERTIFIED 


COPY 


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APPEARANCES 


SHARI N- HINES, Esquire 

Law Offices of Marshall C. Warson, P.A. 
18 00 NVI 4Sth Street, Suite 120 
Fort Lauderdale, FL 33309 

Appearing telephonically for the 
Plaintiff. 


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JAMES A. KOWALSKI, JR., Esquire 
Law Office of James A. Kowalski, Jr., PL 
12627 San Jose Boulevard, Suite 203 
Jacksonville, Florida 32223 

Appearing for the Defendants - 
Lisa and Larry Smith. 


ANDREA N. WRIGHT, Esquire 
The Wright Firm 

1260 North Ponce de Leon Boulevard 
St. Augustine, Florida 32084 

Appearing for the- Defendants - 
John Vonasek and Janice Brown. 


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PR0C5EDINGS 
THE COURT: This is Judge Traynor . 

MS. HXNES: Good morning. Attorney Shari 
Hines calling in for a hearing on K&T Bank versus 
Lisa Smith. 


THE COURT: Ms. Hines / good morning. I have 
Mr. Kowalski here and I have Ms. Wright here. They 
are just getting set up, so just one second while 
they get up and we will go ahead with -- when did 
you send that? 

MR. KOWALSKI: The 27th, but it was supposed 
to be hand walked in. That's okay, I made extra 
copies anyway, 

THE COURT: All right. Mr. Kowalski, it's 
your motion to dismiss the Second Amended 
Complaint, so go ahead. Just speak loud so she can 
hear you, please. 

MR. KOWALSKI: Your Honor, this is a Motion to 
Dismiss with Prejudice for fraud upon the Court. 
This is the third go around, and what I would like 
to do with the Court's permission is to take the 
Court through the three complaints that have been 
filed. The first one is the Complaint. And what 
I'm handing the Court is a copy of the first two 
pages of the Complaint to show the allegations of 


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standing, and then the attachments to the 
complaint . 

In the initial complaint MST alleged it was 
the owner. M&T alleged it was the holder, but that 
the original Note had been destroyed. The exhibits 
consist of a Note, and I've highlighted the portion 
on the Note where it's stamped True and Certified 
Copy of Original. There's a signature section 
there. And then on the stamps which appear on the 
last page of the Note, we see a transfer from the 
initial lender which is First Bank Mortgage, a 
division of First Bank of Georgia to First National 
Bank of Nevada, and then the very last page we have 
an allonge that's signed by Amy Hawkins, Shipping 
Officer for First National Bank of Nevada. 

So this Complaint alleged M&T was the owner 
and holder and held the Note as bearer paper, but 
had forever lost the bearer paper. So this 
Complaint was dismissed without prejudice, and M&T 
was allowed to filed an Amended Complaint. 

The Amended Complaint, and I'm handing the 
Court a copy of the first couple pages of the 
Complaint, together with the attachments. And the 
Amended Complaint was filed in September 2009, the 
initial Complaint was February of 2009. In the 

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Amended Complaint which is now roughly, I guess it 
would be ten months old, M&T alleges it is the 
owner. M&T alleges it is now in possession of the 
original Promissory Nots. M&'T alleged that it was 
the owner by virtue of an assignment. And I'm 
quoting in particular fron Paragraphs 3 and 4 of 
the Complaint. They're the owner of the Note by 
virtue of an assignment, and they're in possession 
of the Original. 

We turn to the attachments, we see the same 
Note V7ith the same True and Certified Copy of 
Original stamp. We see the same stamp from First 
Bank Mortgage to First National Bank of Nevada, and 
we see the same allonge endorsed and blank, First 
National Bank of Nevada, and now for the first time 
we see an assignment. 

Now the assignment is prepared by the law 
firm. And the assignment states that MERS, as 
nominee for First Bank Mortgage, in other words, as 
nominee for an entity that no longer holds the Note 
according to the stamps affixed to the Note itself 
transfers this directiy to M&T, and I’m reading, 
quote, together with the Note. And that's. at the 
second full paragraph of the assignment. 

Unfortunately for M&T, this assignment 


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post-daces the filing of the complaint. Obviously 
it's dated 10 July '09. The original Complaint was 
February of 2009, but here we have the law firm 
itself preparing this assignment v;hich purports to 
deliver the actual Note from the original lender 
directly to M&T . And of course because it vjas 
post-dated on its face, this does not show standing 
at the inception which is required, and this was 
dismissed without prejudice. 

Now we have what brings us here today, and I'm 
handing the Court the Second Amended Complaint. 

For the first time we see that M4T does not own the 
Note. In fact, Bells Fargo Bank National 
Association as trustee owns the note. They allege 
they own it pursuant to an allonge, and that M&T is 
simply the servicer. 

We turn to the Note, we have the same without 
recourse pay to the order of the First National 
Bank of Nevada, but now for the very first tine we 
have a stamp on the allonge. It's on an allonge 
that's signed by First National Bank of Nevada. It 
didn't appear in the true and original copies of 
the Note that were presented to this Court. So 
according to the Third Complaint, - the assignment 
attached to the Second Complaint was a fraud 


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perpetrated upon this Court as a fiction to show 
standing from First Bank Mortgage directly to MS'? 
prepared by the lawyers. 

According to the First and the Second 
Complaint, the allonge is a fraud perpetrated upon 
this Court where a 3.tamp appears for the very first 
time. The assignment is now completely forgotten 
in the Third Complaint. There is no mention at all 
of the assignment, of the fact that the law firm 
itself alleged that MERS as nominee for First Sank 
Mortgage, a division of First Bank of Georgia 
delivered the Note and Mortgage directly to M&T in 
July of 2009. 

Your Honor, the Court is permitted to dismiss 
a case with prejudice. Oh, and by the way. First 
National Bank of Nevada was closed by the FDIC in 
July of 2008, so First Bank of Nevada isn't putting 
any stamps on anything for some time. 

The Court is permitted to' dismiss an. action 
with prejudice if the fraud appears to be so 
pervasive as to permeate the proceedings. Now, 
either M&T or Wells Fargo, or whoever the heck owns 
this Note can still file a new complaint and can 
still foreclose, but the defendants would strongly 
urge this Court to find fraud, based upon these 


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three coiaplaints v/hich are each internally 
inconsistent with each other, and which each shovj 
indicia of fraud between the two others. 

We would ask for a dismissal v;ith prejudice of 
this action. And I have also asked in the motion 
for dismissal with prejudice. I've also asked for 
an evidentiary hearing before the Court to 
determine whether in fact the firm itself, or M&T 
or Wells Fargo — I certainly think the record 
shows the firm is complicit. The firm prepared the 
assignment, which appears to be, according to the 
Third Complaint, a complete fiction. And the 
question then becomes whether M&T and Weils Fargo 
were complicit in the firms’ actions, or whether 
it’s simply the firm. But in any event, it appears 
that fraud upon the Court is pervasive between 
these three documents, and we would ask for' a 
dismissal with prejudice. With M&T or Wells Fargo 
or whoever it is, they obviously can file a ne'w 
action if they wish based upon a new date of 
breach . 

THE COURT: Ms. Kines. 

MS- HINES: Your Honor, there has been no 
fraud committed on the Court. Upon filing of the 
Second Amended — the First Amended Complaint was 

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filed based on information received from the 
client. And with that information that the facts 
were as provided to our firm in order to file said 
Complaint. When the Court dismissed that First 
Amended Complaint, we went back to the client, 
requested that a search be made for any and all 
original documents relating to this file, and 
that's when we received the original Note and 
original Mortgage which has since been filed with 
the Court. 

Upon review of those original documents we 
were able to assert the true chain of title of the 
Note, and that information is what was given in the 
Second Amended Complaint. And the information was 
given in detail in the Second Amended Complaint to 
show the correct chain, and to correct any mistakes 
that had been made in the prior complaint. 

What you have before you. Your Honor, the 
Second Amended Complaint is the chain of title and 
shows what entity has standing to bring this 
Foreclosure Complaint before the Court. 

I — the last hearing that we had, counsel 
stated that standing was note the issue, it was 
something else. Now he's stating that it is 
standing and he's unsure vjhich entity in truth has 


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Suanding to being this action. 

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The court file shows that M6T Bank as 

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servicer, which we now learned is the true -- the 

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true standing of M£T as servicer has the right to 

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file this foreclosure action on behalf of the 

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owner, which is Wells Fargo Bank. And that's what 

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was done. There has been no fraud committed on the 

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truth . 

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TH2 COURT; Mr. Kowalski, is it your -- I have 

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one question, and then I'm going back to Ms. Hines 

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with a couple of questions. Is it your position 

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that a servicer cannot bring an action on behalf of 

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the owner of a Note? 

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MR. KOWALSKI: A servicer can bring an action 

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on behalf of the owner. 

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THE COURT: I just v;anted to make sure. 

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MR. KOWALSKI: No. If the Second Amended 

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Complaint stood on its own, and v/e hadn't had 

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anything for the year and four months — 

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MS. HINES: I can't hear him, sir, I'm sorry. 

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MR. KOV?ALSKI : If the Second Amended Complaint 

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stood on its own and we hadn't had anything for the 

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year and a half before today, then the Second 

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concern is t.hat everything I've said before, we 
have a new stamp placed on what before was 
maintained to this Court as an original copy of the 
Note, or we have an allonge that was completely 
made up by the law firm in order to perpetrate a 
fiction upon this Court, a fiction of standing. 
Either one of those two — 

MS. HINES: But that — 

MR. KOWALSKI: Either one of those two has to 
be true. 

.MS. HINES: Actually that isn't true. Your 
Honor. The original document — the docurcient that 
we had before that did not have the stamp is what 
was originally sent to us. When we requested all 
original documents from the client, what we got was 
that allonge with the stamp on it. And 1 noted 
after we received all the original documents that 
there was a discrepancy, and the firm did not put 
that stamp there, and I doubt that the client did 
either because it's — if the original documents 
are reviewed and they're in the court file, you 
will see that that stamp is rather old. So I'm not 
sure why or where opposing counsel is going with 
this. That stamp was not put there by the firm. 

THE COURT: All right. Anything else? 

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MR. KOWALSKI: Nothing from the defense. 

MS- HIKES: I ju.st want to say,^ Your Honor, 

that I think at this point, I think the Second 
Amended Complaint is complete and alleges enough 
facts in order to proceed with the foreclosure 
action. If we were to proceed with this Motion to 
Dismiss, then you know the Court must view, you 
know, the Motion to Dismiss as it pertains to the 
four corners of the Complaint. VJhat oppoaing 
counsel is proposing is an evidentiary hearing 
which is outside of the purview of a Motion to 
Dismiss . 

THE COURT: Well, I agree that that’s not a 
motion to dismiss hearing, but he wasn't asking me 
to conduct a motion to dismiss hearing with an 
evidentiary component. He was asking me to have an 
evidentiary hearing to determine whether or not — 
what parties are responsible for what he believes 
to be fraud on the Court, and then to determine 
what sanctions are appropriate. 

I do have a question though, this person 
Devesa W'ho is the assistant vice-president of MERS' 
and that assignment, I mean how did y'all prepare 
an assignment in '09, in '09 for a bank that wasn't 
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say the least. 

MR. KOMALSKI : Well, Judge, the point there is 
“hat the assignment is prepared on behalf of an 
entity that no longer exists, but it's First Bank 
of Nevada than was seized, and it’s First Bank of 
Nevada whose stamp is modified from the two exactly 
identical allonges that were filed v/ith the Court 
before . 

THE COURT: Georgia was the initiating bank? 

MR. KOWALSKI: Georgia is the initial lender, 
and then they sold it to First Bank of Nevada 
according to the stamp on the Note. I mean, there 
is so much wrong with the assignment which is the 
second complaint. 

THE COURT: The thing that I'm showing on its 
face is this, and if I just take the Second Amended 
Complaint and then try to get to the third, the 
Second Amended Complaint shows that on the date of 
the assignment — if I don't ask any other 
questions — on the date of the assignment, it was 
owned by Georgia going to M&T Bank, and that's in 
'09. The lawsuit — the lawsuit was -- and that 
was in July of ’09. The lawsuit was brought in 
February of '09. 

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kind of ignores the fact that I've got a recorded 
assignment in the public records. I mean, you 
know, I'm supposed to take judicial notice of my 
files at least/ and I don't know how you get by 
that assignment to the next step. But even if you 
do, how do you — how do you have a bank., and you 
know without a date. I'm just saying without a 
dace, a bank that no longers exists paying it to 
the order of somebody. Wells Fargo, and I don't 
have any dates on any of these documents . 

I know banks for some reason have this fear of 
putting dates on their allonges and their 
assignments. I'm not sure why they do. You know, 
I've got an initial — the third page of the 
original document has got an assignment to First 
National Bank of Nevada, so I know it went at least 
there. And then I've got it to First National Bank 
of Nevada and then to Wells Fargo, but I've got no 
dates when that happened. 

I will take a look at it and I will send out 
an order. I'm not sure what I will do yet until I 
take a look at it, but I appreciate it. 

Y'all take care. Have a good day. 

MS. HINES: Thank you. Your Honor. 

MR. KOX?ALSKI: Thank you. 

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CERTIFICATE OF REPORTER 


STATE OF FLORIDA ) 

) 

COUNTY OF ST. JOHNS ) 

I, Carman L- Gaetanos, FPR, Court Reporter, do 
hereby certify that I was authorized to and did 
transcribe report the foregoing proceedings, 
and that the transcript is a true and correct record 
of my atenograpliic notes. 

Dated this 16th of June, 2010, 

St. Augustine, St. Johns County, Florida. 



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IN THE CDtCUTT CCrURT OF THE 
SEVami JUDIOAL CIRCUIT IN AND 
FOR ST. JOHNS COUNTY, FLORIDA 

CASENO.: CA09-0418 

DIVISION: 55 

M&T BANX, 

Plaintiff, 

vs. 


LISA D. SMITH, etc., et aL, 
Defendants. 


AFFIDAVIT ON BEHALF OF M&T BANK 
IN SUPPORT OF MOTION TOR REHEARING 

STATE OF NEW YORK 
COUNTY OF ERIE 

Joseph Monison, being first duly sworn, makes following statements of feet of his 
own personal knowledge. 

1. Affiant is admkdstiatiYe Vice E'resident and Manager, Real Estate Collection and 
Recovery, for the Plaintiff in this matt^', M&T Bank, a New York Banking CoEporation, and 
'held that position at the time this fbreclosoie was instituted. Affiant has been employed with 
M&T Bank for approximately fifteen (15) years. His dudes include ov^sight and ad minis tration 
of mcatgage foreclosures around the counby. 

2. Affiant, or anoGier equally knowledgeable representative of M&T Bank, will 
appear at the evidentiary hearing scheduled ber^ for Ai^ust 19, 2010 to testify in person as to 
the matter set forth in this Affidavit This Affidavit is offered in support of M&T Bank’s 



233 



pending Molion foi Rehearing in regard to that Order entered June 10, 2010 dismissmg M&T 
Bank’s Second Amended Complaint with Ptcpidice, in order to Q) respond to the questioDS 
raised by the Court in that Order, (2) docmiienl for Hie Court the chain of documentation 
establishing the right and standing of M&T Bank to foreclose the subject mortgage, and (3) 
establish for the Court that while this aetMn refledted significant confusion in regard to the 
relatively complex chain of documents, there was no fraud or falsification whatsoever tn regard 
to iHs proceeding. 


The AHopge Issoe 

fPiscrenflucv hetween Complaiat and S ecood ATnended ComP^aiptl 
3, The mortgage note, attached to each complaint filed herein, includes a stamped 
endomement ftom First Bank of Oemgja to First National Bank of Nevada. 


4. Attached to the initial Complamt filed in this actiem w an Allonge to Note, 
reflecting an endorsement in blank fiom First Nodoiial Bank of Nevada, the assignee of the note. 
A copy of this Allonge is attached hereto as Ejhibit A. 

5. Attached as an exhibit to the Second Amended Complaint is a copy of the 
Allonge to Note endorsed by First National Bank of Nevada, but this copy of the Allonge 
mnlnded a stamp in the place of the blank endorsement, making the note payable to Wells Fargo 
Bank, National Association, as Tmsteei in trust for the Registered Holders of Nomura Asset 
Acceptance Cmporafion Alternative Loan Trust. A copy of this Allmige is attached hereto as 


ExiubitB. 

6.' At the rimR M&T Bank is retained by a financial institution or other Entity to 
service a group of loans, M&T Bank receives, along with an. electronic loan servicing file, two 
paper files: (1) a servicing file, and (2) a enstodial file.. The servieing file ineiudes the loan 
application, closing doenments, appraisals, tMe insurance documents and various other loan- 


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related documents, This file commonly tndudes moltiple copies of certain documents, includiog 
copies of documents in. various stages of cwnpletioii* such ns drafts and unsigned copies. The 
. custodial Sle contains vadous ori gmal docoments, incbiding the note and mortgage. When a 
loan is in default and to be foreclosed, the servicing file is provided electronically to foreclosure 
counsel. Thereafter, origmal documents fiom the custodial file are physically delivered to 
counsel by overnight mail. 

7. • A copy of the blarLk/unstair^>ed Allonge to Ncfte refer«iced in paragraph 4 above 
was included in M&T Bank’s servicing file, and v/as transmitted electronically to foreclosure 
counsel, along with other pertinent documents from the servidng file, immediately upon 
counsel’s eogagemeoL 

8. The stamped/endorsed Allonge to Note, in its ongml tozm, was maintdned in 
M&T Bank’s custodial file, and was separately provided to foreclosure counsel, along with other 
aiiginal documents, ten days afiet transmission of die servicing file. 

9. Li short, a copy of the ucstaii^d/endoTsed-in*b]ank Allonge to Note, and the 
adglnal stamped/eadoraed Allonge to Note, both existed in M&T Bank’s files as separate 
documents. There was no altcrafion to the Allonge to Note in foe course of this foreclosure 
action. Tustead, foe unstampcd/endorsed-in-hlaiik copy of foe Allonge was erroneously attached 
to the additional complaint, instead of the stamped/endorsed Allonge. 

The Assignment of Mortgage Issue 
fFrom Amended Complaint) 

10. Attached to the Amended Con^tlaint filed herein was an Assignment of Mortgage 
fibm Mortgage ELectronic Registration Systems, Tneorporated (commonly taiown as “MERS”), 
as nominee for First Bank of Georgia, assigning the mortgage to M&T Bank. A copy of foat 


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IN THE CIRCUIT COURT OF THE 
SEVENTH JUDICIAL CIRCUIT IN AND 
FOR ST. JOHNS COUNTY, FLORIDA 

CASE NO.: CA09-041S 
DIVISION: 55 


M&TBANK, 

Plaintiff, 


LISA D. SMITH, etc., et al.. 


STIPULATED ORDER 

MODIFYING JUNE 10. 2010 ORDERDISMISSING SECOND AMENDED 
COMPLAINT wrm PREJUDICE. CANCFXLING AUGUST 19. 2010 EVIDENTIARY 
HF.ADTNG. AND VACATING ORDER SCHEDULING OCTOBER 5. 2010 
- REHEARING 

Aftei' considetation by the Court and upon the stipul^on of the parties, it is 
ORDERED: 

1. This Court’s Order Graaling Defendant’s Motion to Dismiss Second Amended 

Complaint witii Prgudice entered June 10, 2010 in this action. C'tiie June 10, 2010 Order”) is 

reinstated and is modified herewith, in the foUowng manner: 

(a) After the first sentence of die second paragr^h on page 2 of the subject Order, 

■which reads “[ujpon review of Defendants’ motion, the Court finds the Plaintiff lacks standing 

and is not a proper party to this suH,” the following sentoice is inserted: 

This finding is limited to this specific action and 'die defeult 
alleged thereinj and should not be construed as a bar - by 
way of res judicata, collateral estoppel, or otherwise - to 
commencement of a new foredosuie action by M&T Bank 
in its capacity as servicer of the subject mortgage, iipoii the 
proper allegations regarding same. 





236 


(b) The last sentence of the first pai'agraph. on page 3 of the Order is deleted. That 
paragraph reads as foilo-ws: 

Accordingly, Hiis action wUl be dismissed with prejudice as to 
M&T Bank, since M&T Bank has been unable to clarify how it 
owns die Note, but Wells Fargo may comn^nce a new action, on 
its own, if it is in fact the owner of the Note. 

(c) The following sentence shall be substituted for sentence deleted above, as the 

last sentence of the first paragraph onpage 3 of the Orden 

Accordingly, this action will be dismissed with prejudice as to 
M&T Bsnk, hut M&T Baai^ or any other entity v/ho has die ri^t 
to foreclose the sufgect Mortgage may commence a new 
foreclosure action. 

(d) The following words are deleted fix»ra the porentliefical sentence at the end of 
paragraph number 1 on page 4 of the Order: “a pxop«r Plaintiff, possibly Wells Fargo, foom 
bringing . . . That sentence shall rtow read as follows; “(However, this Order not prevent 
a new action on die Mortgage and Note.)” 

(e) Otherwise, the June 10,2010 Ordw shall remain in full force and effbcL 

2. This Court’s Order of July20, 2010 scheduling a reh earing on Defendants* 
MotLon to Dismiss Second Amended Complain witli Prejudice for Fraud Upon the Court is 
vacated as moot in light of the preceding paragraph. The rehearing scheduled for October 5, 
201 0 at 3 :15 p.m. is cancelled and shall be removed &om the calendar. 

3. The Evidentiary Hearing scheduled by the Coiuf in this aetton for August 19, 
2010 at 1:45 p,m. is cancelled in li^t of Ok matters resolved.in this Order, and ahall be removed 
from the calendar. 

4. The Plaintiff herein, M&T Bank, shall reimburse the Smith defendants their 
reasonable attorneys fees incurred in the deifese of this action. The Court reserves jurisdiction 


JAXd4‘l625a_ 


- 2 - 



237 


to determine the amount of such reasonable fees, in the event the parties are unable to agree upon 
same. 


DONE AND ORDERED in Chambers, in St. Johns County, St. Augustine, Florida, this 
day of , 2010. oonToriTiGd L.-opy 



J. MICHAEL TRAYNOR 

ciRCu:g.(JSI£j«giajl?^ncr 
Circuit Court Judge 


STIPULATION 

The under-signed do hereby stipulate and agree to entry of the Stipulated Order Modifying 
June 10, 2010 Order' Dismissing Second Amended Complaint With Prejudice, Cancelling August 
19, 2010 Evidentiary Hearing, and Vacating Order Scheduling October- 5, 2010 Reheaiiag, set 
forth above. 


ROGERS TOWERS, P. A 



Florida Bar No. 117110 
1301 Ri'mplace Boulevar-d, Suite 1500 
Jacksonville. Florida 32207-1811 
(904) 398-3911 (telephone) 

(904) 396-0563 (facsimile) 


LAW OFFICES OF MARSHALL C. 



onun n. rancs 

Florida Bar No. 171654 


1800 N.W. 49th. Street, Suite 120 
Fort Lauderdale, Florida 33309 
(954) 453-0365 (telephone) 

(954) 771-6052 (facsimile) 


ATTORNEYS EOS M&T BANK ATTORNEYS FOR M&T BANK 



JAX\]<]4S250J 


-3- 



238 


LAW OFFICES OF JAMES A. WRIGHT FIRM 

KOWALSKI, JR, PL 



I Jam^A. Kowalskih 
rfidaBarNo. 8^740 
12627 San Jose Bcmlevardi Suite 203 
Jacksonville, Florida 32223 
(904) 268-1 146 (telephone) 

■ (904) 268-1342 (fiicsimile) 


ATTORNEYS FOR DEFENDAOTS 
LISA AND LARRY SMITH 


By: 

Andrea N. Wright 

Florida Bar No. 017778 

1260 North Ponce de Leon Boulevard, 

Suite E 

■ St Augustine, Florida 32084 
(904) 808-1200 (tele^ihone) 

(904) 808-1255 (facsimile) 

ATTORNEYS FOR DEFENDANTS JOHN 
VONASEK AND JANICE BROWN 


CONROY, SIMBERG, CANON, 
KBEVANS, ABEL, LURVEY, 
MORROW & SCHEFER, P.A. 


By: 

Dale L. Friedman 
Florida Bar No. 854646 
3440 Hollywood Boulevard, 

Second Floor 
Hollywood, Florida 33021 
(954) 961-1400 (telephone) 

(954) 967-8577 (facsinule) 

ATTORNEYS FOR LAW OFFICES OF 
MARSHALL C. WATSON, P.A. 




- 4 - 



239 


LAW OFFICES OF JAMES A 
KOWALSKI, JILjFL 



12627 San Jose Botilevardi Suite 203 
Jacksonville, Florida 32223 
(904) 268-1146 (telephone) 

(904) 268-1342 (Jacsimile) 

ATTORNEYS FOR DEFENDANTS 
LISA AND LARRY SMITH 


WRIGHT FIRM 


By:. 


■ j 


/ W> 

And 

Flea 

•Ida Bar N( 

kms 


1260 Poiips de Lefc^ Boulevard, 
Suite E 

■ St Augustine, Fl^d a 32084 
(904) 808-1200 (t^hone)/ 

(904) 808-1255 (fac& 


ATTORNEYS FOR DEFENDANTS JOHN 
VONASEK AND JANICE BROWN 


CONROY, SIMBERG, CANON, 
KREVANS, ABEL, LURVEY, 
MORROW & SCHEFER, P.A. 


By: ^ 

Dale L. Friedman 
Florida Bar No. 854646 
3440 Hollywood Boulevard, 

Second Floor 

Hollywood, Florida 33021 
(954) 961-1400 (telephone) 

(954) 967-8577 (fecsimOe)' 

ATTORNEYS FOR LAW OFFICES OF 
MARSHALL C. WATSON, P.A. 


JAXa')‘l62S0_l 


-4- 



240 


LAW OFFICES OF JAMES A. WRIGHT FIRM 

KOWALSKI, JR,, PL 


By:^ 

James A. Kowalski, Jr. 

Florida Bar No. 852740 
12627 San Jose Boulevardj Suite 203 
Jacksonville, Florida 32223 
(904) 268-1 146 (telephone) 

(904) 268-1342 (facsimile) 

ATTORNEYS FOR DEFENDANTS 
LISA AND LARRY SMITH 


By:_^ 

Andrea N. Wright 

Florida Bar No. 017778 

1260 North Ponce de Leon Boulevard, 

Suite E 

• St. Augustine, Florida 32084 
(904) 808-1200 (telephone) 

(904) 808-1255 (facsimile) 

ATTORNEYS FOR DEFENDANTS JOHN 
VONASEK AND JANICE BROWN 


CONROY, SIMBERG, CANON, 
KREVANS, ABEL, LURVEY, 
MORROW & SCHEFER, P.A. 

L. FriedmaD / 

Florida Bar No.^646 
3440 HoUywocfa Boulevard, 

Second Floor 

Hollywood, Eonda 33021 
(954) 961-1400 (telephone) 

(954) 967-8577 (facsimile)' 

ATTORNEYS FOR LAW OFFICES OF 
MARSHALL C. WATSON, P.A. 


JAXU44i:250_ 


-4- 



241 


EXHIBIT 5 


IN THE CIRCUIT COURT OF TtlE 
FOURTH JUDICIAL CIRCUIT IN AND 
FOR DUVAL COUNTY, FLORIDA 

CaseNo.: 16-2006-CA-1564 

Division: CV-G 

THE BANK OF NEW YORK, AS TRUSTEE FOR 
THE HOLDERS OF THE EQCC ASSET BACKED 

certificates; series 2001-2, 

Plaintiff, 


vs. 

Paulette williams; mercury finance 
company of FLORIDA, A DISSOLVED 
CORPORATION, 

Defendants. 

! 

ORDER GRANTING DEFENDANT’S/COUNTER-PLAINTIFF’S 
MOTION TO AMEND AMENDED COUNTERCLAIM AND TO 
ASSERT A CLAIM FOR PUNITIVE DAMAGES 

This cause came on before the Court May 20, 2008 on tlie Motion by Defendant / 

Counter-Plaintiff PAULETTE WILLIAMS to Amend AmeiKfcd Counterclaim to Assert a 

Claim for Punitive Damages. The Court has review'ed the pleadings, revievvkl the authority 

cited, and is otherwise fully advised in the premises. The Court finds as follows: 

The Evidence Proffered bv WILLIAMS 

1. In July, 2004, THE BANK OF NEW YORK filed an action against Defendant 
WILLIAMS in Case No. 2004-4918-CA; Envision CV-G (Circuit Court, Duval County, Florida), 

2. The chain of recorded assignments appearing in tlie Official Books and Records 
of Duval County is as follows: 


1 



242 


Assignment from One Stop Mortgage to AAMES Capital 
Corporation, recorded July 26, 199?. 


Second Assignment from One Stop Mortgage to AAMES Capital 
Corporation recorded July 6, 2000. 


As^gnment from AAMES Capital Corporation to NationsCredit 
Home Equity Services, recorded July 6, 2000. 

Lis Pendem i2004 case) 

July 17, 2004: Notice of Lis Pendens recorded by PlaintifF, The Banlc of New 

York, acting solely in its capacity as Trustee for the Holders of the 
EQCC Asset Backed Certificates, Series 2001-2, in Case No. 
2004-49 18-CA. 

Fourth Assignment 

September 24, 2004: Assignment from NationsCredit Mortgage Corporation of Florida 
to the current Plaintiff, The Bank of New York, acdng solely in its 
capacity as Trustee for the Holders of the EQCC Asset Backed 
Certificates, Series 2001-2, recorded October 26, 2004. 

Fifth Assignment 

October 13, 2004: Assignment from AAMES Capital Corporation to NationsCredit 
Fioahcial Services Corporalion, recorded November 23, 2004. 

Lis Pendens (2006 case) 

February 24, 2006 Notice ofi-isPenticrts recorded by Plaintiff. 

3. The proffered evidence, in the form of records from the State of Florida Secretary 

of State, coupled with Admissions from Plaintiff confirms NationsCredit Mortgage Corporation, 
of Florida did not exist as a corporate aitity as of the date of the Fourth Assignment. Tl-iLs 
Assignment (the Fourth Assignment, above) also post-dates the commencement of the 2004 


First Assignment 
May 21, 1999: 


June 13, 2000: 


Third Assignment 
June 13, 2000: 


2 



243 


action. WILLIAMS also proffered testimony from THE BANK’ s corporate representative, who 
relied upon the September 24, 20Q4 assignment to confirm ownership of the Note and Mortgage 
by THE BANK (Deposition of Mindy Leetham, p. 19-20) - as referenced above, this 
Assignment post-dated the commencement of the 2004 action and was from an company which 
did not exist as a corporate entity at the time. 

4. In addition to the record evidence, which reflects a lack of standing at the time the 
2004 action was commenced, THE BANK OF NEW YORK has admitted and argued 
strenuously in pleadings before the First District Court of Appeal (First DCA Case Number: 
ID07-2626) that its lack of standing was glaring, straightforward and clear, and doomed THE 
BANK’S case from the outset. THE BANK OF NEW YORK is bound by the position it has 
taken on appeal in the 2004 case. Parties are not permitt^ to take inconsistent positions in 
litigation, pursuant to tlie doctrine Of judicial estoppel. The doctrine is intended to prevent a 
litigant from “playing fast and loose witii the courts.” Smith v. Avatar Properties, Inc.^ 714 
So.2d 1103, at 1 107 (Fla, 5** DCA 1998), citing Russell v. Rolfs, 893 F.id 1033, at 1037 (9'" Cir. 
1990). See also, Montero v. Compugraphic Corp., 531 So.2d 1034 (Fla. 3d DCA 1988. 

The Standard for Review of a Motion to Amend to Assert Eiin itive Damages 

5. The Court is permitted to consider a proffer of evidence in support of a Motion 
for Leave to- Amend pursuant to Section 768.72, Florida Statutes. Strasser v. Yalamanchi, 677 
So.2d2(Fla. 4‘^DCA 1996). The burden is upon the moving pai'ty to show a “reasonable basis 
for recovery of such damages” {Will v. Systems Engineering ConsttUanis, 554 So.2d 591, at 592 
(Fla. 3d DCA 1989) accepting all facts reasonably established by the moving party as true. State 
of Wisconsin Imeslrnent Board V. Plantation Square Associates, Ltd., 761 F.Supp. 1569 (S.D. 
Fla. 1991). THE BANK is permitted to assert fects which would show WILLIAMS’ factual 


3 




244 


basis to be patently false or irrelevant (M, at 1581), butluK not proffered any evidence, offering 
instead only arguments of counsel. 

The Standard for Review in This Case 

6. WILLIAMS has already pled counts alleging violations of Florida’s Consumer 
Collection Practices Act (Count I) Malicious Prosecution (Count II), and Abuse of Process 
(Count III). 

7. The Court is allowed to award punitive damages under the Consumer Collection 
Practices Act pui'suant to Section 559.77(2), Florida Statutes. As to Counts II and III, both 
intentional torts, the presence of legal malice based upon a showing of gross misconduct or 
willful and wanton disregard of a PlaindlTs rights is sufficient to support a punitive damages 
award. Alamo Rent-A-Car. Inc, v. Mancusi, 632 So. 2d 1352 (Fla. 1994). 

The Standard for Revtew as Applied to the Proffer 

8 . The evid^ce proffwed by PAULETTE WILLIAMS, as set forth herein, sets forth 
a reasonable basis from which a jury could conclude THE BANK OF NEW YORK w’as, at least, 
grossly negligent in suing PAULETTE WILLIAMS and acted with willful and wanton disregard 
to the rights of PAULETTE WILLIAMS. It is, thorefoie, 

ORDERED: 

Defendant / Counter-Plaintiff’s Motion for Leave to Amend Amended Counterclaim so 
as to Assert a Claim for Punitive Damages is GRANTED, as to THE BANK OF NEW YORK 
only. The Second Amended Counterclaim attached to Defendant / Counter-Plaintiff’s Motion 
for Leave is deemed filed as of the date- of this Order, and THE BANK OF NEW YORK is 
permitted tvi'enty (20) days within which to file a response thereto. 


4 



245 


DONE AND ORDERED, in Chambeis, at Jacksonville, Duval County, Florida, this 

day of May 2008. ORDER ENTERED 

JUN 1 0 2008 
LANCE M. DAY 

CIRCUIT COURT JUDGE 


Copies toi 

John H. Danneclcer, Esq. 

Shutts & Bowen LLP 

300 South Orange Avenue, Suite 1000 

PO Box 4956 

Orlando, FL 32802-4956 

James A. Kowalski, Jr., Esq. 

Law Offices of James A. Kowalski, Jr., PL 
12627 San Jose Blvd. .Suite 203 
Jacksonville, FL 32223 


5 



246 


EXHIBIT 6 


O4/3O/20O9 at 0S:53 AM ISC. $5.00 SOR. $5.00 



KNOWALL MEN nVTBE^iE PRESENTS: 


TW/ir MORTGAGE ELECTRONIC REGISTRATION SYSTEI/S, IKC. 

Residing or locs'.sd ai cto FIRST HOREDN HOME U2AN CORPORATION 4000 HORI^ WAY. IRVING, TX 75D6J. herein 
designalidasttie aaigDor. Cor aDditiconademlan nft-ie sum c^S1 .00 DontrrjtdAdin good and vstothlecenjidentiBn. the receipt 
of which Is hwbyaoloiflwltdged. dees hereb)’ gram. t>a:(ain.MU.tss:ga,l»asriire.K;9a aver tima FIRST HORIZON HOME 
I.0.AN’S, A nrVISION OF FmSTTECNESSEE Bans NATIONAL ASSOCUTtOXresidip8orl«aSsu si: CrO FIRST HORIOT'J 
HOMB LOAN CORPORATION 4000 HORIZON WAV, CtVTKG, TX 75060 bereui Oesigiuted ss Ow usigneei Oie mongege 
exsauced iy CHARLBS H. hlEISELMAM. A UARNEn MAN JOCNEO BY HU WIFE MERRIE O. MIISELMAN recDnled in 
ST. JOTINSCoiniy.FloTidnt book 2932 iLnO page 1239 w-cjmbertn|ihsprep*ny mere panlwliriy iescribed is fellows: 





247 


This Instrumeut Was Prepared By: 

DAVID J. STERN, ESQ. 

LAW OFFICES OF DAVID J. STERN, PJA 
SO I S. University Drive, Suite 500 
Plantation, FL 33324 


INSTRSIOISO^^ 

OR BK 33143 Pages 701-792 
RECORDED 05i’16*C2 15:51:48 


BROWARD COU MTY COMMiSSIOiM 
DEPUTY CLERK 2033 
#1 


POWER OF ATTORNEY 

KNOW ALL MEN BY THESE PRESENTS: That FIRST HORIZON HOME LOAN CORPORATION, a 
TEXAS corporation (AClicnts), wilh its principal offices located at 4000 HORIZON WAY, IRVING, TX 
75053, docs hereby make, constitute and appoint the following: 

DAVID J. STERN, MIRIAM L. MENDIETA, CHERYL SAMONS, FORREST G. 

MCSURDY, BE\^ERLY A. MCCOMAS or WENDY J. WASSERMAK of the LAW 

OFFICES OF DAVID J. STffitN, P.A., 

as attomeys-in-fact, any one (I) of tiie same to be authorized to act, do and perform, on behalf of 
Client, with fuU power and authority to act for it, in its name, place and stead, any and all lawful acts, matters 
and things whatsoever requisite, necessary, proper or convenient to be done, as fiilly as CEent might or could 
' do itself for all inlents and purposes, with regard to the matters listed below and performed in connection witii 
the management and prosecution of foreclosure, bankn^tcy, eviction or related litigation matters; 

1 . To execute, acknowledge, seal, deliver and revola: 

a. any Affidavit in Support of Plaintiffi^ Motion for Summary Judgment that may be 
required’by a Florida state or federal court for «itry of Final Summary Judgment of Foreclosure; 

b. any Affidavit in Support of Creditorss Motion for Relief tiom Stay Lhat may be 
required by a Florida state or federal court for entry of an Order lifting a bankruptcy stay. 

2. This Power of Attorney shall be effective from the date of execution hereof and shall remain 
in full force and effect until such time as it is revoked, in writing, by Client. The revocation of this Power of 
Attomej' may be in whole or in part, and if such revocation shall be in part, it shall only affect the specific 
individual or individuals named in such revocation and shall not affect or impair the powers of any Individual 
not named. Any such revocation shall not oiTcct die validity of a transaction initiated, but not completed, 
prior to such revocation, 

3. By exercise of this Power of Attorn^, die LAW OFFICES OF DAVID J. STERN, P.A. 
shall indemnity and hold harmless Client from and against any and all claims, demands, suits, penalties or 
actions, and from and against any and all attendant losses, costs and cjqjenscs for any claims against, or losses 
or liability of, Client for any cause aiiring out ofi or resulting from, default in the perfonnaace of, or the gross 
negligent performance ofi any obligations of an attom^-in-fect under liiis Power of Attorney. Client agrees 
to not hold the LAW OFFICES OF DAVID J. STERN, PA. liable for any incorrect information supplied by 
the Client to the LAW OFFICES OF DAVID J. ST^N, PA if fee same is provided to any court pursuant to 
this Power of Attorney. 

4. This Power of Attorney is made pursuant to authorization for making of same, which has 



248 


been duly adopted by the governing body of Client 


IN WITNESS WHEREOF, Cliait has caused dusinstnimeocto be executed in Its corporate name by its 
officer thereunto duly authorized this day of , ^ 


In the presence of; 


Client: 


Print Name; 


PimtName: 


STATE OP TEXAS 
COUNTY OF HAt I AS 



I hereby certify that on this day, before me, an oMcer duly authorued in the State aforesaid and in 
•flie County aforesaid to take acknowledgments, personally appear^ MiCHAEL FfSHER and 

SHERRY iTtNSON , as Vice-President and Asastant Seoetary, respecdvely, of 

. a corporation, to me 

known to be the persons described in and who executed flie foregoing instrument and who arc personally 

known to me or who produced ^ as idectificatioii and who acknowledged before 

me that they executed the same on behalf of the said corporation and for the purposes therein sot forth. 


WITNESS my hand and official seal in die Coun^ and State lasjr^fott 
, 20 . 


_ day of 

?^6tarvPublL^ State o f T~Y 
Print Name: L/)n r \rmr:> 




LORJ JONES 
NOTARY PUBLIC 
STATE OF TEXAS 
My C«rm. Bcp. aa-2G-200S 


My commission expires; 



249 


EXHIBIT 7 


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2 

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-IN THE CIRCUIT COURT, 

JUDICIAL CIRCUIT, IN AND FOR 
COUNTY, FLORIDA. 

CASE NO.: 2010-CA- 
DIVISION: 

BANK OF AMERICA, N.A., 

VS . 

, ST AL, 

Defendant . 

/ 

DEPOSITION OF ■ ■ ^ 

DATE TAKEN; , 2010 

TIME : 

PLACE.: County Court Adiainistration Bldg. 

Florida 

This cause caite on to be heard at the time' and place 
i aforesaid, when and where the following proceedings were 

i 

reported by: 

Florida Professional Reporter 


CERTIFIED 

COPY 




250 


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29 

borrowers listed applicable for Options 2 , 4, 6, B, D, 

F, J or L only, in which • and •. 

elect . 

Q And you said you reviewed Exhibit 2 before 
today? 

A That's correct. 

Q Okay. So Exhibit 2 certainly refers to an 
election of the Borrowers Protection Plan by both the 
husband and wife in this case? 

A That's correct. 

Q And the Borrowers Protection Plan is similar 
to credit life or credit disability insurance; is that 
correct? 

A I wouldn’t 3cnow. 

Q Is the Borrowers Protection Plan monitored or 
supervised by a unit of BOA? 

A I wouldn’t know. I would assume that it's 
monitored by one of our insurance divisions. 

Q One of "our” meaning Bank of America? 

A One of Bank of America's insurer's divisions. 

Q Let me show you what I will mark as Exhibit 4 

which is ih fact — I'm sorry there may be two there, 
let me see. 

(Defendants' Exhibit 4 marked for identification.) 

THE WITNESS: Yeah, there is. 



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BY MR. KOWALSKI: 

Q If you can hand one to your lawysr. 

Let me asJc you to take a look at Exhibit 4 for 
just a second. 

First off on the coversheet it bears a Bank of 
America stamp; is that correct? 

A That's correct. 

Q Indicating that Bank of America sent this to 
7 

A That's correct. 

Q If Bank of America sent the Borrowers 
Protection Plan to Mr . , do you have a reason why 

you don't know about it? 

A During my review of the case, 1 vrasn't able to 
find this information. 

Q Do you have access to the Borrowers Protection 
Plan interface? 

A . No, I do not. 

Q Why not? 

A I don't know. 

Q Did’ you ask for it since -you were coming here 
to talk about it as a spokesperson for BOA? 

A I didn’t know where to obtain it. 

Q Well, who did you ask who told her, I don't 
know where to obtain this either? Did you ask your 



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31 

boss? 

A Yes, I actually did ask my boss where I would 
be able to find this. 

Q Okay. You said. Hey, boss, I've got to go to 
• where one of the three things I*m being 
asked to talk about is the Bank, of America Borrowers 
Protection Plan that our borrowers signed up for and 
paid for, can you tell me where to find it? Did you ask 
her that? 

A Yes . 

Q And her answer was? 

A That she would have to do more research into 
it, but she hadn't heard about it. 

Q When did that conversation take place? 

A Probably a month ago. 

Q , And when did your boss get back with you and 
say, I've done my additional research and I don't have a 
clue where to find the Bank of America Borrowers 
Protection Plan that our borrowers bought and paid for, 
when did she come back and tell you that? 

A Probably a little bit less than a month ago.- 

Q How long ago? 

A I don't know offhand. 

Q So as you sit here today as the corporate 
spokesperson of Bank of America, your testimony is that 



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32 

you were not able to find any information about the Bank 
of America issued product that's specifically referred 
to in the documents that your lawyers filed with the 
Court; is that your testimony here today? 

A That’s correct. The only information that I 
was able to find i*jas the sheets that ware attached to 
the back of the Note. 

Q Okay. Did the Borrowers Protection Plan in 
this case pay monsy on behalf of Mr. and Mrs. ■? 

A Not that I’m aware of. 

Q Let me show you what I will mark as 5 which is 
a letter by which Bank of iimerica confirmed they were 
paying under the Borrowers Protection Plan, ang take a 
look at “hat. 

(Defendants' Exhibit 5 marked for identification.) 

THE WITNESS; Okay. 

BY MR.' KOWALSKI: 

Q It's a letter dated , 2010, it 

says: Dear Bank of America Customer — and you see it's 
on Bank of America letterhead — your request — by the 
^way, it references Bank of America Borrowers Protection 
Plan, Line Protection 'Plan Services in Santa Ana, 
California, you see that at the bottom? 

A Yes . 

Q It says: Dear Bank of America Customer — 


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referring ro -- Your request for Disability 

benefits under the Borrowers Protection Plan has been 
approved. Do you see that? 

A Yes. 

Q Referring back to Exhibit 4 which is the plan 

itself, Paragraph 16, it says. The lender cannot attempt 
to foreclose upon or repossess, or initiate any 
foreclosure procaedangs or repossession activities upon 
any collateral until 35 days after the benefits request 
is rejected. Do you see that at Paragraph 16, Page 7 of 
8 of the Bank of America Borrower's Protection Plan? 

It's all capitalized. 

A Yes . 

Q Can you tell me a reason why Bank of America 

instituted foreclosure proceedings on , 

2010 when — I'm sorry, what did I say? 

MS. EINSTEIN: 2010. 

BY MR. KOWALSKI: 

Q 2010. Can you tell me why Bank 

of America instituted foreclosure proceedings against 
Mr. and Mrs. . on , 2010 when their 

request for Disability benefits under the Borrowers 
Protection Plan was approved by letter from Bank of 
America dated ., 2010? Can you explain that 

to us today as the corporate representative of Bank of 



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America, or do you th.ink Exhibit 5 is- a forgery? 

A I don't know. I would, have ho do further 
research in that. 

Q Do you understand that the research was 
supposed to be done before today? 

A. Yes . 

Q Do you understand that we've got a room full 
of people here, including Kr . , who by the way is 

disabled and awaiting surgery, all of whom arranged 
their schedules so that you could answer questions about 
Area of Inquiry 3 in a deposition notice that's been in 
existence for months, do you understand that? 

A Yes-. 

Q Can you explain to us then why you're wasting 

the time of everybody else in this room — 

MS. HSMKE: Objection; form. 

BY MR. KOWALSKI: 

Q — including apparently yourself? 

A Again, you know, this information right here, 

I have not seen. 

Q I understand that. But why didn't you go look 
for it when apparently it's bSing issued by another 
department of your employer? 

MS. HENKE: Objection; form. 

THE WITNESS: I have looked for it. 



256 


1 

2 

3 


6 

7 

g 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 
21 
■22 

23 

24 

25 


35 

Again, Bank of America, extremely large 
company, lots of departments, you knovr, this might 
have been something that was missed. I can look 
further into it though. 

3Y MR. KCi'JALSKI: 

Q As you sit here today, do you know anything at 
all about Area of Inquiry 3? 

A No. 

Q All right. I'm going to mark — we were 
provided documents here today. I'n going to nark the 
first packet -- we only have one copy, although I think 
your lawyer has a copy -- of something. Let me describe 
it better. Okay. Do you have your copy? 

{Defendants' Exhibit 5 marked for identification.) 

MS. HENKE: Yes, I do. 

BY MR. KOWALSKI: 

Q It’s 15 pages, and I marked it as Exhibit 6. 

At tne top there is the numbers 1 through 7 separated by 
dots and in between two arrows, and at the top it says 
/ next line , Retained by 

Litigation Management and assigned to . . 

What is Exhibit 5, these what did I say, 15 
pages? What is Exhibit 6? 

A Those are servicing notes. 

Q And are these servicing notes maintained by 



257 


EXHIBIT 8 


c 


r 


IN THE CIRCUIT COURT OF THE FOURTH 
JUDICIAL CIRCUIT, IN AND FOR DUVAL 
COUNTY, FLORIDA 

CASE NUMBER i6-2004-CA-4835-XXXX-MA 

DIVISION: CV-E 


TCrFRE02,LLC, 

Plaintiff, 

V. 

MARTIN L. LEIBOWITZ, AS TRUSTEE, 
etc., et al.. 


( THS 
I ‘^'"TRUMENT 

••'liTER 
. I'KAYER 


ORDER GRANTING DEFENDANTS* MOTION FOR SANCTIONS 
This cause came before the Cotirt on April 5, 2006 on Defendants Robert Jackson and Lillian 
Jackson’s Motion for Sanctions for Fraud Upon the Court The Court has reviewed the pleadings, 
considered arguments of counsel, and is otherwise folly advised in the premises. 

The Court finds Plaintiff, through its servidng entity, GMAC Mortgage Corporation, 
submitted false testimony to the Court in the form of Affidavits of Indebtedness signed and 
subscribed by Margie Kwiatanowski, a “Limited S^ing Officer** with GMAC Mortgage 
Corporation. The submission of the false Affidavits was pursuant to protocols and procedures 
wherein Ms. Kwiatanowski, as Limited Signing Officer, vrould attest to review of the relevant loan 
documents, the Complaint, and the loan payment records, when in fact (as sworn to by Ms. 
Kwiatanowski in her deposition) she nmfher reviewed the referenced records nor was familiar with 
the manner in which the records were created by GMAC on behalf of Plaintiff. In her deposition, 
Ms. Kwiatanowski adniittednone of the Affidavits were signed before a Notary, and that Affidavits 
of the sort filed by Plaintiff would be signed and then left in a folder, to be notarized at a different 




258 


c 


c 


time. The admissions by Ms. Kwiatanow^ in her d^osition directly contradict the sworn 
testimony to the Court in the form of fihe ref^enced Affidavits, both as to the substance of the 
Affidavits and with regard to whether the Affidavits were sworn to before a notary. 

The Court recogni 2 es die statements made by Plaintiff’s counsel at the hearing to the effect 
that the procedures in place at GMAC wiffi regard to servicing of this Plaintiff s loans were being 
corrected. The Court finds the submission of false testimony to the Court in the manner described 


does not rise to the level required in order for tins Court to dismiss the action. Cox v. Burke. 706 
So.2d 43 (Fla. 5’’’ DCA 1998.) The Court will not condone Plaintiff’s actions in filing false 
testimonyj however, and the Court has bofii the inher^at authority to sanction Plaintiff’s actions, 
based upon the findings set forth above, and finds sanctions to be appropriate. It is therefore: 


ORDERED AND ADJUDGED: 

1 . Defendants’ Motion for Sanctions for Fraud Upon the Court is GRANIED. 

2. The subject AffidaNttsas completed by Ms. Kwiatanowski are and same be stricken. 

3. The Court order? PlaintiSfto pay Defendants’ attorneys’ fees and costs for the efforts 

related to the taking of Ms. Kwiatanowski’s deposition. Based upon a review of the record and the 
Affidavit filed by Defendants’ counsel, the Court finds a reasonable sanction to be hours of 

attorney’s time and further finds a reasonably local hourly rate to be $250.00, and further awards 
costs in the amount of ^ 'ff . Therefore, the Plaintiff, TCIF RE02, LLC, Inc. shall forward to 

defense counsel payment of S ^ I'lM in sanctions for the reasons set forth above within 

of this Order. 

4. Counsel fox Plaintiff shall file witii the Court GMAC’s written explanation and 
confirmation, on behalf of Plaintiffi that GMAC’s policies and procedures with regard to the 
servicing of ail of this Plaintiff s loans within tile State of Florida have been modified, in accord with 


2 



259 




representations made by counsel to the Court that suchmodificahons were being made, to confirm 
the affidavits filed in fiitiire foreclosure actions in Florida accurately memorialize the actions and 
conduct of the affiants. The writtea confirmation of policy changes, and an explanation for the 
policies now in place, shall be filed witii the Court within days of the date of this 

Order. 


DONE AND ORDERED* in Chambers, at Jacksonville, Duval Cotm^, Florida, this 
day of May, 2006. 



Copies to: James A. Kowalski, Jr., Esquire 

Roy A. Diaz, Esquire 


3 



260 


3-'S-^54, 


IN THE CIRCUIT COURT OF THE FOURTH 
JUDICIAL CIRCUIT, IN AND FOR DUVAL 
COUNTY, FLORIDA 

CASENUMBEIU 16-2004-CA-4835-XXXX-MA 
DIVISION: CV-E 

TCIF RE02,LLC, 

Plaintiff, 

V. 

MARTIN L, LEIBOWrrZ, AS TRUSTEE, 
etc., et al., 



COME NOW, Defendants Robert and Lillian Jaij^^on, by and through their undersigned 
counsel, and pursuant to Rule 1.140, FloridaRulesofCivilProcedure, hereby move the Court to 
ent» sanctions against die Plaintiff, including Dismissal of die pending matter widi prejudice and 
such other sanctions as the Court deems appropriate, hi support of this Motion, Defendants 
would state as follows: 

1 . On or about August 6, 2004, Plaintiff filed a Motion for Summary Judgment with 
this Court In support of the Motion for Summary Judgment, Plaintiff contemporaneously filed 
an Affidavit of Indebtedness signed and subscribed by Margie Kwiatanowski, a “Limited Si gnin g 
Officer” vrith GMAC Mortgage Coiporalion (“GMAC”), the servicing agent for Plaintiff. 
Plaintiff filed subsequent Amended Motions for Summary Judgment on March 10, 2005 and 
November 3, 2005, and again filed Affidavit of fcidebtedness signed and subscribed by Ms. 
Kwiatanowski, as a Limited Signing Office. 




261 


2. The Affidavits of Indebtedness contains Ms. Kwiatanowski’s statements, 

allegedly under oath, on behalf of GMAC, that die: 

(a) has “personal knowledge of "file status of all mortgages and notes owned and 
held by sdd corporation.” (AfBda^^t, par^raph 1). 

(b) has “examined the relevant loan documents and the Complaint, and each 
allegation of the Complaint is cotrecL” (Affidavit, paragraph 2). 

(c) is familiar with the loanp^mentrecoris, which are regularly compiled and 
maintained as business records: “These records properly reflect loan payments, charges, and 
advances that are noted in the records at the time of tiie applicable transactions by persons whose 
r^ular duties include recording this information.” (Affidavit, paragraph 3). 

(d) swore and subscribed to tiie statements before a Notary. 

3. The Affidavits additionally detail the alleged facts as the status of the mortgage, 
including die material dates, the amount owed and the fe^ and charges. 

4. Ms. Kwiatanowski was depc«ed at GMAC’s facility in Horsham, Pennsylvania, 
on January 31, 2006. See, Notice of Deposition, attached hereto as Exhibit “A” and incorporated 

reference. During the deposition, Ms. Kwiatanowski admitted the above statements under 
oath were false: 

(a"l has **pftrKnna1 knowledge of the status of all mortgages and n otes owned 
and held bv said corporation.” (Affidavit, paragraph Ih 

Ms. Kwiatanowski admitted that, while she can access other loan documents, the 
statement regarding personal knowledge was felse: 


2 



262 


Q. All right. Let me ask you to go to file Amended Affidavit, 
which is Jackson 00006. And we’U ^art wilh page - - Tm soiry, 
paragraph 1. 

It states that you’re a iimited signing office and that you have 
personal knowledge of file status of all mortgages and notes owned 
and held by said corporation. 

Do you see tiiat? 

A. Yes, Ido. 

Q. How is that true? 

A. Well, generally, I undi^stand wdiat a note and a mortgage is, 
and how - - how the loan is originated. 

Q. Right. But this says you have personal knowledge of the 

status of all mortg^es owned and held by .said corporation; 
corporation being TCIF RE02, LLC? 

A. Well, actually, we’re tile seavidng agent for them. We 

would not have originated file loan. 

I’m not quite sure how to answ^ your question, though. 

Q. Well, how is it fiiat you have personal knowledge of the 

status of all mortgages serviced by GMAC for this claimant? 

A. Again, I’m not - - 1 don’tknow. 

Q. Do you have personal knowledge of the status of all 
mortgages and notes serviced by GMAC for this claimant? 

A. No, Ido not 

DepositionofMargieKwiatanowski, taken January 31, 2006 (p. 30 line 9 - p. 31 
line 1 5) (emphasis added) 

(bl has “e'^animfid the relevant lo—i documents and the Complaiiit. and each 
allegation of the Complaint is correct” (Affidavit paragraph 2), 


3 



263 


Ms. ECwiatanowski testified ^ reviewed only a single computer screen prepared 
by someone else. She did not review any loan documents, much less the “relevant” ones, and did 
not read the Complaint: 

Q. Now, paragraph 2 - - andPm just jumping ahead to your 
affidavit But your affidavits, as you may be familiar, referenced 
the fact that you retdewed certain things in order to sign the 
affidavits? 

A. That’s correct. 

Q. Okay. The records in pwagr^h 2 that are requested are: 

Any and all documents, eiectromc meaK>randa, policy manuals, 
servicing manuals, or other items of any kind reviewed in 
preparation for completion of die Affidavit of hjdebtedness dated 
July 15, 2004, and Amended Affidavit of Indebtedness dated 
October 20, 2005. And your affidavits are then attached after this. 

But my next question is: Is there anything other than what’s sitting 
to your left, that you recall reviewing in order to prepare the two 
affidavits? 

A, I would have -- excuse me, Tm sorry. 1 would have 
reviewed a screen in our system that populates what the total 
indebtedness is. And I don’t believe a copy of that screen is within 
this pile. 

Q. Okay. Are yousayingtiiatyoureviewed a single screen? 

A. Yes. 

Q. And when I’m picturing a screen. I’m picturing a single 
page of infomiatvon; or is there more than one page of information 
that appears on ycrur screen? 

A. There is one page of information- 

Q . What is that page of information called? 

A. It’s called the foreclosure work screen. 


4 



264 


Deposition ofMargieKwiatanowski, taken January 3 1, 2006 (p. 191me 13-p.20 
line 24) 

» * * 

Q. Okay. Did you review tfie payment history separately? 

A. I would have no reason to review it separately. 

Q. Okay, ti other words, you did not review the payment 
history before completing your affidavit? 

A. That’s collect, 

Q. Would you have reviewed die actual note of mortgage 

before complying your affidavit? 

A. No, I would not have. 

Q, Would you have reviewed any of the customer history log, 
the docurnent, the discussions back and forth between the 
mortgagors and the servicing company? 

A. No, I would not have. 

Q. Is it fair to say, then, diat in completing an affidavit 

such as the ones we have attached as Bates stamped Jackson 3 
through 5, and Jackson 6 through 8, that you would have 
reviewed one computer screen called the foreclosure work 
screen? 

A. That’s correct 

Q. And nothing else? 

A. That’s conect 

D^osition of Margie Kwiatanowski, taken January 31, 2006 (p. 22 line 16 -p. 23 
line 17) (emphasis added) 


5 



265 


« 4> 

Q. Paragraph 2, it says: I have examined the relevant loan 
documents and the Complaint, and each allegation of the 
Comply is correct. 

Is the Complaint part of the foreclosure wod: screen? 

A. No, it is not. 

Q. Would, you have actually read die Ckjmplaint before signing 

the Amended Affidavit of Indebtedness? 

A- No, I would not. I could have reviewed it because generally 
they are downloaded in a system that we have linked to our 
attorneys. 

Q, Scanned? 

A. Yes. Imaged. 

Q. Imaged? 

A. Um-hmm. 

Q. Do you know whedier it*s general practice to bring the 
image of the Complaint: when you’re reviewing the foreclosure 
work screen? 

A. No, I would not. 

Q. So typically you would not examine die Complaint before 

signing die affidavit? 

A. That’s correct 

Q. We’ve already covered diat youieview the foreclosure 

work screen. 

What are die “relevant loan docum«its” that are referenced in 
paragraph 2? 


6 



266 


A. 1 wo\jld think that they would have been any thing that is 

supplied to the foreelosLng atbwney; it would be the mortgage, the 
note, the title policy. 

Q. And did you review the relevant loan documents 
coDSEsdng of the mortage and the note and the title policy 
before signing the Amraded Affidavit of Indebtedness? 

A. No, I did not. 

Deposition ofMar^eKwialanowski, taken January 31, 2006 (p. 31 line 16-p. 33 
line 6) (emphasis added) 

*‘These records properly reflect loan payments, charges, and advances that 

are noted in the records at the time of the applicable transactions bv persons whose regular 

duties include recording this information.” ^Affidavit paragraph 3V 

Ms. Kwiatanowski admitted tfiat she had no knowledge of whether the . 

uifbimation kept was recorded ‘‘at the time of the applicable transaction by persons whose 

regular duties include recording this information,” and simply relies on the “system” without 

having any idea how or whether the “system” confinns entries are made accurately and timely: 

Q. Do you agree that that sentence, the last sentence of 
paragi^h 3 of your aftidavit, indicates diat the entries are made at 
the time of the transactions? 

A. Yes, I do. 

Q. Ok^. So then, kt me step back and re-ask the question. 

How is the system set up to confirm that those entries are made 
accurately and timely? 

A. I wouldn’t be able to answer that. 

That’s not my area of expertise. 

Q. Well, you swore to this affidavit, 

A. WeU- 


7 



267 


Q. You swore to the truth of the &c4 that the history is noted in 

the record at the time of the transaction. 

How do you know that to be true? 

A. Because I - 1 have to rely on our ^ston of record; 

Q. Right. I agree that it"s set up for you to rely on that, but 
that’s not what tiiis says. It says you’re swearing to the feet that 
that record is accurate and timely. 

A. I just would have to have confidence in my system that it is 
true and correct. 

Q. Okay. Is there any - let me go back to ray hypothetical that 
I asked you, where a mortgagor has a conversation with a loan 
specialist or work-out specialist, or whatever their title is, and 
reaches some sort of payment plan. Okay? 

A. Okay. 

Q. How is the system set up to confirm, number one, that that 

conversation is entered diat day, for example, versus an employee 
taking a note and entering it a we^ later when they come back 
fiom vacation; and now is it set up to confirm that die data is 
entered accurately, diat the employee has die payment numbers and 
times of payment and method of paymcirt entered accurately? 

A. I wouldn’t be djle to answer that because that’s not in my 
unit. 

Q. As part of your unit, have you ever gone back to confirm 

how you can swear to the truth of this sentence? 

A. There are times whenlmighthaveto review a loan as far 
as conversations, if a borrower was disputing something. There 
would be those times that I would review the notes and 1he account 
at that point. 

But in - in this particular affidavit, I had no reason to go back to review anything. 

Deposition of Margie Kwiatanowski, taken January 3 1, 2006 (p. 34 line 13 - p. 36 
line 20) 


8 



268 


The record in the instant case demonstrates some minimal scrutiny (as 
otherwise sworn to in the subject Affidavits, but never actually completed by the Affiant) would 
be necessary: 


Q. And is it fak to say that as of November 25, 2003, the 

Jacksons were complete paid up wifli GM^, according to that 
entry? 


A. I would — I would have to coiffitm that by looking at the 

payment history. 

Q. Well, tell me what else that entry vrould mean; in other 

words, why would that entry be made in dte comment history if the 
payment history didn’t reflect it as true? 

A. Well, as it should, it should agree. I don’t -» Pm not 
disputing that. But my feeling would be I would look to see how 
the payments were applied, to see if they were applied correctly, if 
I had a reason to review dds account. 

Q. Which you did not? 

A- That’s correct. 

Q. Well, isn’t it feir to say that your affidavit indicates that the 
payment due February 1, 2004, isttie fliat placed this loan in 
default, correct? 

A. That’s correct. 

Q. And that would be a paym^ due for December, a payment 

due for January, and ap^mient due for February of *04, correct? 

A. That’s correct 


Q. Did you ever go back to confirm whether those were the 

payments that threw this loan into default? 

A. 1 would only know vdiat^ due date is in the system. 


9 



269 


Q. Just based on what the foreclose work screen says? 

A. That’s correct. 

Q. Would you know vdio die person - because I want to be 

fair» now that I have an understanding of your role in this. 

Would you know who the would be who would be most 
familiar widi die entries on die comment history that we’re going 
over right now? 

A. I don’t think I could give you a specific person, no. 

Q. Okay. IfltoldyoudiatMr. and Mrs. Jackson have 

canceled checks lowing payments cashed by GMAC on January 
5* of ‘04 and February 14, of ‘04, you have no explanation for that; 
that’s not your role in reviewing diis? 

A. That’s correct. That’s something payment research would 
handle. 

Q. Okay. With regard to whedier die payments were 
accurately allotted to principal and interest as opposed to paid &om 
suspense or pay to suspense, that would not be your role? 

A. That’s conect. 

Q. Allotting the payments accuratdy is not your role? 

A. That’s correct. 

Deposition of Margie Kwiatanowski, taken January 3 1, 2006 (p. 49 line 10 - p. 51 
line 21) 

Unfortunately, while die Affidavit reflecting sworn testimony to the Court 

indicates the Affiant has conducted a con^jlete review of the file, GMAC’s system is designed so 

diat other departments within GMAC are lespon^le for reviewing the data: 

Q. All right Ms. Kwiatanowski, let me ask you this: Is tiiere 
any reason or any way in the system that is set up widiin GMAC 
for the foreclosure work sere^ to indicate any problems or issues 
or disputes prior to the day you review it? 

A. No. 


10 



270 


Q. If there are comment in the - 1 forget what we called 
- the commeait history, if there are comments here that note, for 
example, that the borrower is having problems trying to get 
someone to resolve escrow and paym«tt applications issues, if 
there are comments that say Account escrow payment may not be 
correct, sent for explanation, that of thing, are any of those - 
or do any of those result in any sort of flags diat get to the 
foreclosure work screen? 

A. If th^e were any reason, if there was a dispute prior to a 

loan being referred, they would put what we call a CIT on the loan; 
that would prevent it from bdng referred while it was being 
researched. 

Q. Okay. And I do see that, flie listing ibr CIT, throughout this 
history. 

What then, stops that CIT tiigg^ and sends it on to your 
department, or stops the CIT hold and dien sends it on to your 
department? 

A. I believe there’s — I believe there’s two different CITs for 

different lengths of time to keep it on hold. I believe - and also it 
would fall into someone’s queue to see whether or not that should 
be removed prior to remoting it; to sc<^ for example, to see if the 
research has been completed. And if it has been and they find no 
error of GMAC’s, then they would remove that CIT and that would 
move forward to foreclosure. 

Q. Okay. Which departmranrt conducts that analysis - 

A. It would - 

Q. - is it done before it gets to your department or your unit? 
A. Yes. 

Q. Okay. How’s fliat get done? 

A. It would be throng customer service. It would really 
dqjend on what the issue was as to what unit would be handling it 


11 



271 


Q. Okay. Well,forexainpIe,herewehave — andFuijustsummarizingthis, 
and just because I think it is accurate - but there are entries here throughout vrith 
regard to a dispute in how the payments are being applied; you know, one notation 
here made by a GMAC individud that the aixount escrow payment may not be 
correct, sent for explanation. 

How can you - or can you tell from friat whidi unit is handling the 
review? 


A. No, I cannot. 

Q. What are the names of the units that do the reviews; you 
said there were two? 

A. Well, there’s a payment - tiiere’s j^yment research. 

Ihere’s an escrow unit if it v/ere a dispute wiA taxes or insurance, 
they would need to review it For an MI issue, diat area would 
review it. It would alt depend on the issue - 

Q. Okay. 

A. - who would be researching it. 

Q. Is there a way to tell from the comment histories which 
units resolve the dispute? 

A. It would show by diat teller number on there who the 

associate was. 

Q. Okay. 

A. And then, you would know from there what unit they would 
come from, 

Q. And again, that gets done on the DocTrac - Tm sorry. 

A. The XNeL 

Q. XNet? 

A. Preconversion, on the XNet 

Q. Okay. 

A. PostcoEversion, we can do itright on our system. 


12 



272 


Q. Is there a review process to make sure that the conclusion is 
accurate? 

A. I wouldn’t be able to answ^ that 

Deposition of Margie Kwiatanovraki, taken January 31, 2006 (p. 58 line 7 - p. 61 
line 24) 

(dl swore and subscribed to the statements before a Notary. 

Finally, Ms. Kwiatanowski admitted at die deposition she did not sign the 
Affidavits in front of a notary, but that it was “oui^ regular practice for the Affidavits to be 
placed in a folder and sent across the building to be si^ed by the notary, sometimes on another 
day: 

Q. On Ms. Holmes’ notary section, do you see there that she 
does not fiU out the name of the person who is taking the oath? 

A. I see that now, yes. 

Q. And do you see that she also do^ not have a notary stamp? 

A. I see that also, yes. 

Q. Are you familiar wifri Pennsylvania’s notary statute? 

A. I realize that they have to have a stamp to notarize. 

Q. And that both of those are violations of Pennsylvania’s 

notary statute? 

A. I would think so, yes. 

Q. How is it that you and Ms. Holmes Mided up in the same 
place at the same time for completion of the affidavit, how does 
that physically work? 

A. Well, all docvunente that we sign already sworn in, she 
would hand me personally. So she would just sign off- she would 
notarize it after I signed off. 

Q. Are you two in the same room when that’s done? 


13 



273 


A. Yes. 

Q. Okay. How is that pbysicalJy done, is what I am asking? 

A. We w'ould - anything that I would si^ over to — anything I 

would sign off, I would give to her to notarize. 

Q. Okay. And how - again, how is that physically done; do 
you and she meet in the same room, at the same time in the 
same place? 

A. She 19 in the same building. 1-1 would leave - it could 
be more than just one affidavit in a folder and I waited for her 
to notarize. 

Q. Okay. But by then, I’m taldng it that she notarizes it at a 
different time than you sign it? 

A. That’s correct. 

Q. Okay. Is that aiso true for the signatuie on Jackson 00008? 

A. Yes, that’s correct. 

Q. And that appears to be a Brenda Staehle? 

A. Brenda Staehle. 

Q. Staecle, S-T-A-M-L-E. 

A. Actually it’s S-T-A-E-H-L-E. 

Q. Okay. Thank you. 

And she does irwhcate that you are toe p^Pii swearing, and she 
does have her notary stamp here. But what you’re indicating is you 
signed the document - 

For example, the Amended Affidavit of Indebtedness, which is 
6 through 8 on our Bates stamp, you sign the document, you 
put it in a folder, it gete routed to Ms. Staehle and then she 
signs it at a later time? 

A. That’s correct. 

Q. Do you know if she signs it on the same day that you do? 


14 



274 


A. Generally, yes, she would 

Q. How do you know that, what’s the control for that? 

A. Because they would try to com^iete something within the 

same day; as we have our guidelines to follow and our time frames 
to get it back to the processor, to supply it back to the attorney. 

Q. Okay. Bat there’s no doubt that she doesn’t notarize it 
- or she doesn’t witness your sigutug? 

She does not witness or did not witness you placing your 
signature on Bates stamp 8; is diat correct? 

A. That’s correct 

Deposition of Margie Kwiatanowski, taken January 3 1 , 2006 (p. 27 line 4 - p. 30 
line 8) (emphasis added) 

Clearly, the notary statutes of both Penn^Ivania (57 P.S. 158) and Florida 
(Section 1 17.05, Florida Statutes) are violated by the process used by GMAC in the instant case 
Cand In all other ca-sea. given the procedure outlined by Ms. Kwiatanowski.) Violation, of 
Florida’s notary statutes in the manner described (notarizing a signature if the person whose 
signature is being notarized is not in the presence of foe notary at the time) constitutes 
malfeasance and misfeasance in the conduct of official duties, pursuant to Section 117.107(9), 
Florida Statutes. Under Pennsylvania law, when a notary certifies a document, the notary attests 
that the document has been executed, that the notary was confronted by the sipior, that the signor 
is foe person whose name is subscribed, and that the notary is verifying the date of execution, hi 
Re Fisher. 320 B.R. 52, at 63 (E.D. Penn. 2005) (emphasis added.) 

5. As referenced above, the Affidavits of hKtobtedness filed by GMAC in 
fiirtherance of the foreclosure constitute sworn testimony to this Court in validation of the debt 
and GMAC’s right to collect the debt. Unfortunately, the Affidavits are rife with falsehoods and 
misstatements; GMAC’s system does not allow fee Affiant (or her entire department, for that 


15 



275 



matter^ any opportunity to review the actual histoty of the loan or any of the loan document, as 
the Affidavit otlierwise maintains to the Court. Defendants assert the filing of such false sworn 
testimony is a fraud upon this Court. 

6. It is appropriate for the trial court to disarms an action based on fraud, 
provided thattliere is a blatant showing of “fraud, pretense, collusion, or ofiier similar 
wrongdoing.” Distefano v. State Farm K/fuhtal Automobile Ins. Co.. 846 So. 2d 572, 574 (Fla. 1" 
DCA2003). 

7. Misrepresentations in the Affidavit are willibl fraud, interfering wifii the 
Court’s “ability to impartially adjudicate a matter by improperly influencing the trier of feet or 
unfeirly htunpOTng the presentation of the opposing party’s claim or defeDse.”/(i 

8. This Court should dismiss the peodii^ action with prejudice and award such other 
relief as the Court deems just and appropriate. 

WHEREFORE, Defendants Robert and Lillian Jackson, respectfully request this Coxirt 
enter sanctions against Plaintiff, mcluding entry of a Dismissal wife Prejudice and such other 
relief as the Court deems just and appropriate. 

DATED at Jacksonville, Duval County, Florida, this ^ day of March, 2006. 

LAW OFFICES OF TROMBERG 
& KOWALSKI 


m&mMsai 


Ffed Tr^berg, Esqmre (FB>y 2 
jiqESS^ Kowalski, Jr., Esquire (FBN: 852740) 
Charlie F. Schmitt (FBN: 0012803) 

4925 Beach Boulevard 
Jacksonville, FL 32207 


Telephone: (904)396-5321 
Facsimile: (904)396-5730 
Attorneys for Defendants 


16 


CERTIFICATE OF SRRVirF, 


I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished by 
U.S. Mail this ^ day of March, 2006, to Diana B. Matson, Esq., 2691 East Oakland Park, 
Suite 303, Ft Lauderdale, FL 33306, 



277 


Exhibit “A” 


IN THE CIRCUIT COURT OF THE FOURTH 
JUDICIAL CIRCUIT, IN AND FOR DUVAL 
COUNTY, FLORIDA 

CASE NUMBER: 16-2004-CA-4835-XXXX-MA 

DIVISION: CV-E 


TCIF R£02, LLC, 

Plaintiff, 


V. 

MARTIN L. LEIBOWITZ, AS TRUSTEE , 
etc., et 2 l., 


NOTICE OF DEPOSITION 
OF MARGIE KWLATANOWSKI WITH REQUEST 
TO PRODUCE DOCUMENTS AT DEPOSITION 
fBY VIDEOTAPE RECORDING! 


TO: Diana B. Matson, Esq. 

2^91 East Oakland Paik Blvd. 

Suite 303 

Fort Lauderdale, FL 32306 

PLEASE TAKE NOTICE that on Tuesday, January 31, 2005, af 12:30 p.m. and 
continuingthereafteruntil complete, atSOO Enterprise Road, Horsham, Pennsylvania, 19044, the 
Defendants, Robert Jackson and Lillian Jackson, will take the videotaped deposition of the 
following: 

MARGIE KWUTANOWSKI 

upon oral and video examination pursuant to the Florida Rules of Civil Procedure before Esquire 
Deposition Services, or before some other office authorized hy law to take depositions. Said 
deposition is being taken for the purpose of discovery, for use at trial, or both. 



278 


At the date, time and place of the deposition, the witness shall have with her the following: 

1 ' Ail books, records, and documents kept or maintained hy Plaintiff and or its ' 
agents or employees which r^ate in any way to Robert and Lillian Jackson. 

2. Any and all documents, electronic memoranda, policy manuals, servicing manuals 
or other items of any kind reviewed in prepar^ion for completion of that certain 
Affidavit o.f Indebtedness, dated July' 15, 2004 :aiid Amended Affidavit of 
Indebtedness dated October 20, 200X copies ot which are attached hereto. 

DATED, at J ncksonville, Duval County, Horida, this S day of December, 2005. 


LAW OFFICES OF TROMBERG & 
KOWALSKI 



Charlie F. Schmitt, Esquire (FBN; I2S03) 

4925 Beach Boulevard 

Jacksonville, FL 32207 

Telephone: (904)396-5321 

Facsimile: (904) 396-5730 

Counsel for Defendants Robert and Lillian Jackson 


certificate of service. 


T T CERTIFY^t a true and correct copy of the foregoing has been furnished by 

U.S. Mail delivery', diis day of December, 2005, to Diana B. Matson, Esq., 2691 

East Oakland Park, Suite 303, Ft. Lauderdale, FL 33306. 


Esquire Deposition Services 
1600 JFK Boulevard, Suite 1210 
Philadelphia, PA 19103 





^nes ^Kowalski, Jt., Esquirf 


2 



279 


c 




IN THE ORCUIT COURT FOR DUVAL 
COUNTY, FLORIDA. CIVIL DIVISION 


CASE NO. 162004CA004835XXXXMA 
TCIFRE02,LLC. 


Plaintiff, 

vs. 


martin L. LEIB0WIT2, AS TRUSTEE UNDER THE 
JACKSON FAMILY LAND TRUST DATED NOVEMBER 
18, 2002; ROBERTL. JACKSON; LIUIANM. JACKSON- 
WILLIAM W. MASSEY, IE; STATE OF FLORIDA 
department of REVENUE; UNKNOWN TENANT 
NO. l;UNKN0WNTENANTNO.2 et al 


Defendants. 





THIS INSTRUMENT 
JN COMPUTER 
J.t 


./ 


plaintiff»s ^ 


ORDER DATED MAY 1. lOOfi 


COMES NOW, me piatatiff, TCIF RE02, LLC., by and through iB undersigned eonnsel, and 
files this Notice of Compliance with this Court's Order dated May 1 , 2006, and states that the Plaintiff 
has forwarded a check to opposing counsel as required pursuant to paragraph 3 of said Order, and has 
simultaneously herewith submitted the Directive to the Court, as required pursuant to paragraph 4 . 

CERTIFtCATP. Off .SF.lpVTrr 

I HEREBY CERTIFY that a true and correct copy of the foregoing Notice of Compliance has 
been sent via U.S. Mail this J^^day of June, 2006 to all parties on the attached Service List. 


SMITH, HIATT & DIAZ, P.A. 
Attorneys for Plaintiff 



.DIAZ 
Florida Bar No. 767700 


H:'CLIENT\6126.24S54'Notice of earapliance withi 


I order 5'mMS.wpd 



SERVICE LIST 

Case No. 162004CA004835XXXXMA 

Martin L. Leibowitz, as Trustee under 
the Jackson Family Land Trust 
2120 Oak Street 
Jacksonville, FL 32204 

Fred Tromberg, Esq. 

4925 Beach Blvd. 

Jaoksonville, FL 32207 
Attorney For Robert L. Jackson 
And Lillian M. Jackson 

William W. Massey, lH 
2254 Riverside Ave 
Jacksonville, FL 32204 

State of Florida Department of Revenue 
c/o Dr. Dr. James A. Zingale, Executive Director 
501 South Calhoun Street, Carlton Buildm& Room 104 
Tallahassee, FL 32399 



281 


C3 


O 


Smith. 
Hiatt (S; 
Diaz, P.A. 

attorneys 


, this 

f JNSTRUMl 

IN I 
, COMPUTER I 
I THAYER I 


June 12, 20061 


Via Overnight UPS 

The Honorable Bernard Nachman 
Duval County Courthouse 
330 E. Bay Street, Room 202 
Jacksonville, FL 32202- 


2691 E. Oakland Park Blvd. 

Suite 303 

Fore Lauderdale, Florida 33306 

(954) 564'0071 Telephone 
(954) 564-9252 Facsimile 

Mailing Address: 

PO Box 11438 

Fort Lauderdale, Florida 33339-H38 

spiwi 

JUfi u; 

BERNARD NACHMAN 




RE: 


TOP RE02. LLC v. MARTIN LEIBOWITZ. as TresKe, at a], 
Cass No. 1S2004CA004835XXXXMA 

cv-e 



Dear Judge Nachman: 

with Notica of Compliaota 

Thank you for your consideration. 


Rl Kpec mlly subjnitled, 
ShflTH, HIATT & DIAZ, P.A. 



S 


.) 


Enclosures 


cc;.James A. Kowalski, Jr., Csq 



282 


C 


G 


■ SSs2=2Sr=-- 

^'■^“^^pendendy 

"' notan-aj 

^'awei^eiywJiers. 



CERXmCATION 


The undersigned certifies that as of Jims 1, 2006, the attached Policy Directive on 
Document Siguatore Procedure has been distributed to the associate general counsel and 
associate counsel of the respective business units of GMAC Mortgage Corporation for 
distribution to authori 2 ed signatories within die enterprise. This Policy Directive is a 
reaffirmation of existing procedures incoiporafing the statutory mandates to notaries 
public of the respective residence states of such notaries public. 


June 6, 2006 



James J. Barden 

Associate Counsel - Legal Stas' 



284 


STATE OF MAINE 
CUMBERLAND, ss. 


BRIDGTON DISTRICT COURT 
DOCKET NO. BRI-RE-09-65 


FEDERAL NATIONAL MORTGAGE ASSOC. ) 

) 

Plaintiff ) 

) 
) 

'■ )- 

) 
) 
) 

NICOI.LE BRADBURY ) 

) 

Defendajit ) 

kid ) 

) 

GMAC MORTGAGE, LLCd/b/aDiTech,LLC ) 

.com aod BANK OF AMERICA, NA ) 

) 

Pai1ies-in-lntcrcst ) 


ORDER ON FOUR 
PENDING MOTIONS 








0 






The Court has reviewed each of the fotir pending motions before it, as well as elII 
supporting materials, inciudiog supporting affidavits and statements of material fact. The 
Court held oral argument on September 1, 2010. Those present were attorneys Tom Cox, 
Esq. and Geoffrey Lewis, Esq. for Defendant, and attorney John Aromando, Esq. for 
Plaintiff arid Pafty-in-Intexest GMAC. Attorneys Cox and Ai'omando argued capably for 
their positions. 

On the question of summary judgment, before the Couit is Plaintiffs Renewed 
Motion for Summary Judgment, as well as Defendant’s Motion for Revision and 
Reversal of the Partial Summary Judgment Order. By its motion, Plaintiff asks that the 
Court affirm its previously issued order of January 27, 2010 granting summary judgment 
in its favor on the issue of liability, and further seeks summary judgment in its favor on 
the issue of the amounts owed. The Defendant’s motion seeks to set aside this Couit’s 
previous ordei- granting partial summary juc^ment for Plaintiff. 

Defendant urges that this Court set aside its order on the ground that in so ruling, 
the Court relied upon the affidavit of Jeffrey Stephan, which was deficient under M. R 
Civ. P. 56(e) because Mr. Stephan had signed the affidavit outside the presence of a 
notary and without readiirg its contents. The Plaintiff contends tiiat the order can stand 
even puttmg aside the Stephan affidavit and in any event has sought to cure the 
irregularities in its filing by submitting apropo-ly sworn affidavit to support its motion.- 



285 


There ai'e, however, deficiencies in Plaintiffs filing which are not cured by the 
newly-submitled affidavit, namely deficiencies in its stoteinent of material facts (SMF). 
The Law Court has made clear that in ruling on a summary judgment motion, Maine 
courts are “neither required nor permitted to search outside the facts properly referenced 
in the statements of material facts See, e.g, Camden Nat‘1 Batik v. Peterson, 2008 
ME 85 1[ 26, 948 A.2d 1251, 1258 (emphasis added). In Chase Home Finance LLC v. 
Higgins, 2009 ME 136, 985 A.2d 508, the Law Court set forth a list of those facts which 
“must be included in tlie mortgage holder's statement of material facts.” Id. at 11, 985 
A.2d at 511. Plaintiff was bound to abide by this mandate, because both its initial and 
renewed summary judgment motions were filed alter the June 15, 2009 effective date 
noted in Chase. See id at TI 1 1 n.2. 985 A.2d at 510 n. 2 (e.’cpiaining that new statutes and 
rules will apply to summary judgment motions filed after dieir effective dates, regai’dless 
of when the foreclosure action was commenced, and adding: “We include the new 
requirements here for future reference of- parties moving for summary judgment in 
residential foreclosure actions”). 

Neither Defendant’s initially-filed statement of material facts nor its revised 
statement of material facts comports with Chase. For example, the mortgage holder’s 
statement of facts must include existence of the mortgage, including the book and 
page number of the mortgage, and an adequate description of the mortgaged premises, 
including the street number, if any.” id al^ 11, 985 A.2d at 511 (citing P.L. 2009, ch. 
402 §§ 9, 17, effective June 15, 2009). Plaintiffs initial and subsequently filed statement 
of facts provide the book and page number, but fail to include the street address. See 
Plaintiff’s SMFs at ^ 2. Failure to include the street address is enough m itself to 
preclude the granting of summary judgment. See Mortgage Eiec. Registration Sy.^. v. 
Saunders, 2010 ME 79 H 25 (explaining that “While the book and page number - but not 
tlie mortgaged property’s address - were Included in the affidavit suppoituig one of 
MERS’s original statements of material fact, fects not set forth' in the parties’ statements 
of material facts are not part of the summary judgment record”). 

Plaintiffs SMFs contain other omissions as well. It is not enough to stale, as 
Plaintiff does, that “Demand has been made upon Defendant for payment of all amounts 
due Plaintiffs SMFs at^l 5. 14 M.R.S.A. § 6111 requires that a mortgagee’s default 
notice set forth the mortgagor’s right to cure, and specifies the requisite content of such 
notices as well as tlie procedures which must be followed As the Law Court stated in 
discussing compliance with the statutory written notice requirements of foreclosure, “For 
a mortgagee to legally foreclose, all steps mandated by statute must be strictly enforced.” 
Camden Nati Bank, 2008 .ME al T| 21, 948 A.2d at 1257. Plaintiffs statements of fact 
fail to set forth facts showing compliance with § 6111. Granting summary judgment 
despite such an omission would contravene the Law Court’s clear pronouncements on 
this issue. 

Accordingly, this Court’s Partial Summary Judgment Order dated January 27, 
2010 is hereby vacated per the request in the Defendant’s Motion for Revision and 
Reversal, and Plaintiffs Renewed Motion for Summary Judgment is denied. No further 
summary judgment motions will be heard, as the deadline for filing dispositive motions 


2 



286 


has long passed and Plaintiff has already been giv^ a second bite of the apple. The 
parties have twenty days to file an agreed pre-trial order so thai this matter may promptly 
be placed on the trial list in Portland. This file is now transferred to the Portland District 
Court for furtlier filings and trial. 

In addition to renewing its Motion for Summary Judgment, Plaintiff has also filed 
a Motion for Entry of Protective Order pursuant to M.R. Civ. P. 26(c). This motion is 
likewise denied. 

Rule 26(c) provides that ‘Tor good cause .shown” a court may enter a protective 
order “which justice requires to protect a party or person ..from annoyance, 
embarrassment, oppression, or undue burden or expense ....” M.R.Civ. P. 26(c). 
Plaintiff seeks a protective order “prohibiting the dissemination of discovery materials 
obtained in this case.” Plamti£Ps Motion for Entry of Protective Order at 7. As grounds 
for its motion. Plaintiff points to the embarrassment GMAC and its employees have 
suffered, and will continue to suffw, from the posting of excerpts from Stephan’s 
deposition transcript on an Internet blog. The Court is not persuaded that the Plaintiff has, 
shown the requisite “good cause” to justify entry of a protective order m this case. S$e, 
e.g., Public Citizen v. LiggeU Group, Inc., 858 F.2d 775, 789 (l“ Cir. 1988) (agreeing 
with Second Circuit in noting that “the p«ty seeking a protective order has the burden of 
showing that good cause exists exists for issuance of that order.... [and] the obverse is 
also true, i.e. if good cause is not shown, tiic discovery materials in question should not 
receive judicial protection and dierefore would be open to the public for inspection”) 
(citation omitted). 

Stephan’s deposition was taken to advance a legitimate purpose, and the 
testimony elicited has direct probative value to tiiis dispute. Attorney Cox did not himself 
take action other than to share tiie deposition transcript with an attorney in Florida. That 
the testimony reveals corporate practices that GMAC finds enibaiiassiiig is not enough to 
justify issuance of a protective order. Fuilher, Plaintiff has failed to establish that GMAC 
has been harmed specifically as a result of the dissemination of the June 7, 2010 
deposition transcript, given that similarly embarrassing deposition testimony from 
Stephan’s December 10, 2009 Florida deposition also appears on the Internet, and will 
remain even were this Court to grant Plaintiff’s motion. Accordingly, because Plaintiff 
has failed to satisfy its burden of persuasion under Rule 26(c), its Motion for Entry of 
Protective Order is denied. 

In addition to seeking the reversal of this Court’s previously granted Order for 
Partial Summary Judgment, the Defendant has moved for sanctions pursuant to M.R. Civ. 
P. 56(g). This motion is granted in part, as explained below. 

The facts underlying Defendant’s motion are for the most part undisputed. 
Plaintiff does not dispute that its affiant, Jeffcay Stephan, in his role as limited signing 
officer for GMAC, Plamtiffis servicii^ agent, signed the affidavit which Plaintiff 
submitted in support of its Motion for Summaiy Judgment without even, reading it and 
without signing in the presence of a notary. These facts came into the record because the 


3 



287 


Defendant went to the time and expense' of traveling to Pemsylvania to take Stephan’s 
deposition. In that deposition, which took place on. June?, 2010, Stephan testified that he 
signs some 400 documents per day, and that the process he follows in signing summary 
judgment affidavits is consistent with GMAC’s policies and procedures. 

The Court is particularly troubled by the &ct that Stephan’s deposition in this case 
is not the first time that GMAC’s high-volume and careless approach to affidavit signing 
has been exposed. Stephan himself was deposed six months earlier, on December 10, 
2009, in Florida. His Florida testimony is consistent with the testimony given in this 
case: except for some limited checking of figures, he signs summary judgment affidavits 
without first reading them and wWiout appearing before a notary. Evej^jmore troubling, in 
addition to that Florida action, in May, 2006 another Florida court not only admonished 
GMAC, it sanctioned tlie PlaiiitifT lender for GMAC’s affidavit signing practices. As part 
of its order, the Florida court required GMAC to file a Notice of Compliance, indicating 
its commitment to modilfy its affidavit signing procedures to conform to proper practices. 
The experience of this case reveals that, despite the Florida Court’s order, GMAC's 
flagrant disregard apparently persists. It is w'ell past the time for such practices to end. 

Accordingly, Defendant asks that this Court impose sanctions pursuant to M.R. 
Civ. P. 56(g), which provides: 

Should it appear to the satisfaction of the court at any time that any of the 
affidavits presented pursuant to tliis rule are presented in bad faith or solely for 
the purpose of delay, the court shall forthwith order the party employing them to 
pay to the other party the amount of the reasonable expenses wliiclr the filing of 
the affidavits caused the other party to incur, including reasonable attorney’s fees, 
and any offending party or attorney may be adjudged guilty of contempt. 

Although there are no Maine Law Court cases applying it, the plain language of 
Ritle 56(g) makes clear that the Court must determine, first, whether it appears “to the 
satisfaction of the court” that an affidavit submitted for summary judgment purposes was 
presented “in bad faith or solely for the purpose of delay.” The Law Court has defined 
“bad faith”, albeit in a different context: “Bad faith ‘imports a dishonest purpose and 
implies wrongdoing or some motive of self-interest’ Bad faith means ‘dishonesty of 
belief or purpose Seacoasl Hangar Condo. 11 Ass‘n. v. Martel, 2001 ME 1 12 ^ 21, 
775 A.2d 1166, 1171-72 (citing a Utah case and Blaok’s Law Dictionary).’ It is left to 
tlie Court’s discretion to determine whether offending conduct rises to the level of “bad 
faith” such that Rule 56(g) sanctions are warranted. See, e.g., Cobell v. Norton, 214 
F.R.D. 13, 20 (D.D.C. 2003) (noting that “as a practical matter a court has wide 
discretion in deciding what constitutes ‘bad faith’”) (citing Wright & Miller, Federal 
Practice and Procedure § 2742 (3d ed 199,8)). If a Court is satisfied that the affidavit was 


’ Seacoast Hangar's definition of “bad faith” occurred in the context of discussing the 
business judgment rule, which “does not insulate directors from, liability for breach of 
their fiduciary duties if they ‘acted primarily through bad faith or fraud Id. at^20 
n, 1, 775 A.2d at 1 171 n. 1 (citation omitted). 


4 



288 


submitted in. bad faith, then the mandatory language of Rule 56(g) requires lliat llie Court 
forthwth order “the party employing [the affidavit] to pay to the other party the amount 
of tile reasonable expenses which the filing of the affidavits caused the other party to 
incur, including reasonable attorney’s fees.” M.R.Civ. P. 56(g). 

Both parties cite Fort Hill Builders, Inc. v. National Grange Mut. Ins. Co., 866 
F.2d 1 1 (l" Cir. 1989), in which the First Circuit analyzed the cases applying the Federal 
Rule 56(g) to conclude that the matters in which sanctions were imposed involved 
“particularly egregious” conduct. Characteriang its misconduct as a mere “procedural 
deficiency,” Plaintiff urges the Court to find no bad faith; Defendant on the other hand, 

. ai'gues tliat, .on the spectrum of egregioiisness, the conduct at issTjeigi^^® than meets the 
standard for bad faith under the rule. . • . 

The Court apecs with Defendant, and finds to its satisfaction that the Stephan 
affidavit was submitte^mi^ad faith. Rather than being an isolated or inadvertent instance 
of misconduct, the Court finds^that GMAC has persisted in its unlawful document signing 
practices long after and cveif;in the face of the Florida Court’s order, and lliat such 
conduct constitutes “bad faith’-ti'imder Rule 56(g). These documents are submitted to a 
court with the intent that the court find a homeowner liable to the Plaintiff for thousands 
of dollars and subject to foreclosure on the debtor's.residence. Filing such a document 
without significant regard for its accuracy, which the court in ordinary circumstances , 
may never be able to investigate or otherwise verify, is a serious and troubling matter. 
Accordingly, the Court orders Plaintiff* to compensate Defendant’s counsel for Ms 
attorney’s fees and costs “which the filing of the Affidavit caused [him] to incur” - in 
other words, that Plaintiff pay Defendant’s counsel for his time and expenses in preparing 
for and taking Stephan’s deposition, as well as for his time and expenses in preparing for, 
filing, and prosecuting Defendant’s Rule 56(g) motion.* 


^ As the Florida court imposed sanctions on the Plaintiff lender for GMAC’s conduct, the 
Court likewise finds it appropriate to hold Plaintiff responsible for the conduct of its 
servicing agent, GMAC. Requiring Plaintiff to pay Defendant counsel’s attorney’s fees 
comports both with the language of Rule 56(g) (award of expenses should be ordered 
against paity “employing” affidavits) as well as with principles of agency law. See, e.g., 
Dupuis V. Federal Home Loan Mortgage Corp., 879 F. Supp. 139, 144 (D.'Me. 1995) 
(holding that “[a]s a matter of agency law, it would be unfair for [the note and mortgage 
holder] to have the benefit of [the servicing agent’s] servicing of the note and mortgage 
without also making [the note and mortgage holder] responsible for [the servicing 
agent’s] excesses and failures"). 

* The Court declines to award fees for opposing Plmntiffs summary judgment or 
protective order motions, because those tasks were not “caused” by the bad faith 
affidavit. Because the Court finds its award of attorney’s fees and costs to be a sufficient 
sanction for Plaintiffs bad faith conduct, the Court declines to explore the issue of 
contempt in this case as requested by Defendant. 


5 



289 


Defendant has ten days from the dale of this order to file an affidavit setting forth 
his time spent, usual hourly rate/ and eiqienses incurred in taking Stephan’s deposition 
and filing and pursuing Defendant’s Rule 56(g) motion. Plaintiffs written objection to 
Defendant’s counsel’s claimed expenses, if any, must be filed within seven days 
thereafter, and shall only address the sums clmmed. Tlie Court will tliereupon issue an 
order setting forth, the reasonable sum Plaintiff owes to Defendant’s counsel. 

The clerk shall docket this order by reference imder Rule 79(a). 



Maine District Court 


That Defendant’s counsel is entitled to an award of attorney’s fees is not affected by the 
fact that he has labored in this case on a pro bono basis. Cf., Foster v. Mydas Assoc., Inc., 
943 F.2d 139, 144 n..7 Cir. 1991) (noting that civil rights attorneys who work pro 
bono and prevail are usually awarded attorney’s fees under civil rights statutes). 

6 


Mr. Johnson. Thank you, sir. 

Next we will have Mr. Cox give his statement. Thank you, sir. 

TESTIMONY OF THOMAS A. COX, ESQUIRE, VOLUNTEER PRO- 
GRAM COORDINATOR, MAINE ATTORNEYS SAVING HOMES 
PROJECT, PORTLAND, ME 

Mr. Cox. Chairman Johnson, Members of the Committee, thank 
you for this opportunity to be here today. I am retired from the pri- 
vate practice of law in Maine, where for many years I represented 
lenders as well as the FDIC in loan litigation matters. For the past 



290 


2V2 years I have been working full-time as a volunteer with Pine 
Tree Legal Assistance of the Maine Volunteer Lawyers Project. I 
have come to know the foreclosure industry well from both sides of 
the street. 

At the hearing conducted by this Committee on December 2, 
2010, representatives from Treasury, the Federal Housing Finance 
Agency, and the Office of the Comptroller of the Currency each said 
that their agencies first learned of the issues relating to dishonest 
foreclosure affidavits and other foreclosure irregularities when the 
news broke in the press in September of this year. Those were 
stunning admissions. These issues have existed for years now and 
have been widely known to those of us representing homeowners. 
There was a massive failure in the regulators’ oversight of these 
servicers. The issues we are talking about today should have been 
immediately apparent from any reasonably diligent examination of 
the servicer’s foreclosure operations. 

Because the time allowed for me to speak is so brief I am going 
to address my remarks solely to my dealings with GMAC Mortgage 
over the last several months. 

Problems with GMAC Mortgage were first exposed on the public 
record by Attorney Kowalski in Florida back in 2006 when he was 
dealing with a robo-signed affidavit from a GMAC limited signing 
officer that was executed in 2004. So we know these activities go 
back at least 6 years. The Florida court sanctioned GMAC for that 
conduct in 2006, but GMAC rewarded its employee who was the 
cause of those sanctions with a promotion. She became the super- 
visor of GMAC’s document signing department where she is the su- 
pervisor the GMAC’s current robo signer, Jeffrey Stephan. It was 
his dishonest affidavit signing practices revealed in the deposition 
that I took of him on June 7th that forced GMAC to finally an- 
nounce a halt in sales and evictions from foreclosed homes on Sep- 
tember 17th of this year. Stephan, who signs between 8 to 10,000 
documents a month, testified on June 7th that when his affidavits 
state he has personal knowledge of the facts stated in them, he 
doesn’t. When his affidavits state that he has custody and control 
of loan documents at issue, he doesn’t. When his affidavit states 
that he is attaching true and accurate copies of loan documents to 
his affidavits, he has no idea if that is true because it doesn’t even 
look at them. And Stephan admitted that when his affidavits con- 
tained a sign attestation by a notary public that he personally ap- 
peared to be sworn, he doesn’t even bother to do that. Furthermore, 
he testified that his practices are fully in accordance with GMAC 
Mortgage practices and procedures. 

When GMAC Mortgage realized the damaging admissions made 
by Jeffrey Stephan in the deposition I took, rather than imme- 
diately moving to correct the problem, GMAC sought to cover it up. 
GMAC sought money sanctions against me personally for sharing 
that deposition transcript with other foreclosure defense lawyers 
around the country. They sought an order from the court that it be 
used in no other case and they sought an order from the court that 
it be retried from any lawyers who had received it from me. 

In the end the Maine court denied the motion for sanctions that 
GMAC sought and imposed affirmative sanctions against GMAC 



291 


for its bad faith affidavit signing practices and ordered GMAC to 
pay attorneys fees sanctions in that one case alone of $27,000. 

Very recent actions of GMAC Mortgage prove that it is not pre- 
pared to cease its use and reliance upon these false affidavits. At 
the hearing conducted by the House Subcommittee on Housing and 
Community Opportunity on November 18th, 2010, Thomas 
Marano, the CEO of Ally Financial, the parent corporation of 
GMAC Mortgage, testified that GMAC is no longer proceeding with 
foreclosures based upon Stephan’s affidavits without first going to 
the courts and seeking approval to use them. This fall we notice 
that GMAC Mortgage was doing exactly the opposite in Maine and 
was proceeding with foreclosure judgments based upon those false 
affidavits. We brought a Maine State court class action against 
GMAC seeking an injunction to stop it from continuing these offen- 
sive practices. 

GMAC has vigorously opposed that effort to prevent the Maine 
State courts from even considering our request for injunctive relief. 
GMAC removed our case to the United States District Court in 
Maine, where the Anti-Injunction Act prohibits that court from en- 
joining any State court proceedings. 

In light of these efforts by GMAC to avoid any judicial consider- 
ation of an injunction, the District Court ruled just this past Friday 
that even though we clearly had a right to a hearing on the merits 
in the State court, that court was powerless to grant any relief 

I submit to you that there has been abuse of our judicial systems 
by the foreclosure industry on an unprecedented and truly massive 
scale. Economic interests are driving this abuse. Until these per- 
verse economic interests are addressed and until the regulators 
truly start monitoring the loan servicers and until the force of the 
criminal justice system is brought to bear upon the dishonest con- 
duct of the servicers, including more than just the robo signers, 
those at higher levels who clearly have been aware of and condoned 
and ordered this conduct, there is not likely to be enduring change 
in this industry. 

I thank you for the opportunity to be here today, and I welcome 
for questions. 

[The prepared statement of Mr. Cox follows:] 



292 


Prepared Statement of Thomas A. Cox 


Foreclosed Justice: Causes and Effects of the Foreclosure Crisis 


Written Testimony 
of 

Thomas A. Cox, Esq. 

Volunteer Program Coordinator 
Maine Attorneys Saving Homes 

A joint project of Pine Tree Legal As.sistance and 
The Maine Volunteer l-awycrs Project 


Before the House judiciary Committee 


December 2, 2010 



293 


THE FORECLOSURE CRISIS AND THE RULE OF LAW 


Where the law is subject to some other authority and has none of its 
own, the collapse of the state, in my view, is not far off; but if law is the 
master of the government and the government is its slave, then the 
situation is full of promise and men enjoy all the blessings that the 
gods shower on a state. 

Plato 


In America, the law is king. For as in absolute governments the King is 
law, so in free countries the law ought to be king; and there ought to 
be no other. 

Thomas Paine, Common Sense, 1776 


I. INTRODUCTION. 

Chairman Conyers, Ranking Member Smith and members of the Committee, 
thank you for inviting me to testily today regarding the causes and effects of the 
foreclosure crisis. 

I am here today to speak for two constituencies. Foremost in importance are 
the millions of homeowners who have lost their homes, or who are at risk of losing 
their homes in the present foreclosure crisis. The other is the supremely dedicated, 
and vastly outnumbered, group of lawyers from around the country which is doing 
its best to protect these homeowners and which has been instrumental in exposing 
the current foreclosure scandal. 

1 call myself a retired lawyer these days, although the last two and one half 
years of my retirement has been dedicated on a full time basis to the work of the 
Maine Attorneys Saving Homes ("MASH") project MASH is a project jointly 
sponsored by Maine's legal services organization, Pine Tree Legal Assistance and its 
affiliated Maine Volunteer Lawyer’s Project In the MASH project we have trained a 
network of over 60 private practice attorneys to assist in providing pro bono 
representation to Maine homeowners undergoing foreclosure. We act as a 
clearinghouse to intake these cases and refer them out to private pro bono counsel; 
and after referrals are made, 1 provide back up consultation and support to those 
lawyers. 1 function purely as a volunteer and receive no compensation, directly or 
indirectly from Pine Tree Legal Assistance of the Maine Volunteer Lawyers Project. 


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1 have been a lawyer for over forty years now. Fresh out of law school in 
1969, 1 went to work for a non-profit organization in Boston called Citizens Housing 
and Planning Association where we were working to help increase and upgrade 
housing resources for low income residents. Following that 1 was in private practice 
for almost thirty years. During much of that time I represented major banks and 
financial institutions in Maine. During the much different banking crisis of the late 
1980s and early 1990s I represented these banks, as well as the FDIC, in many 
foreclosure and loan litigation cases. I prepared and litigated many foreclosure 
summary judgment motions and know the requirements of that system well. 

In 2008, after several years away from the legal profession, I began my 
volunteer legal work for MASH. What I encountered there was a stunning reversal 
to what my practices had been in representing banks and the FDIC twenty years 
earlier. Certainly the volume of foreclosure cases is huge when compared to normal 
times, but the conduct of the mortgage servicers and their lawyers in bringing these 
cases is what really astonished me. Their conduct was uniformly careless at best to 
downright deceptive and fraudulent at worst. I can say with professional pride that 
in my days as a bank lawyer, I do not believe that 1 ever lost any motion for 
summary judgment that I filed in a foreclosure case. That was so because they were 
prepared honestly and with respect for the rule of law as set forth in our rules of 
civil procedure. 

What I encountered when 1 came to MASH in 2008 were large volumes of 
summary judgment motions of mortgage servicers prepared with little regard for 
honesty, with little to no respect for the legal protections afforded to homeowners 
under our foreclosure statutes and under our rules of civil procedure, and with utter 
disregard for the integrity of the judicial system. I estimate that, in foreclosure 
summary judgment motions handled by MASH volunteer lawyers and by Pine Tree 
Legal Assistance, the motions for summary judgment of the servicers are denied 
more than 75% of the time. The loan servicing Industry and their lawyers are not 
troubled by this loss ratio because they know that fewer than 6% of homeowners 
needing legal assistance in Maine can obtain such assistance. In the other 94% of 
their foreclosures, they face no opposition in their race to foreclosure. 

] considered assigning to this testimony the title "Two Different Worlds of 
Foreclosures" after listening to and reading the testimony pre.sentcd to the House 
Financial Services Housing and Community Opportunity Subcommittee by 
representatives of the loan servicers on November 18, 2010. The world of 
foreclosures and the perfect record of outcomes described by Mr. Marano of Ally 
Financial [the parent corporation of GMAC Mortgage] is so extremely different from 
what we, as lawyers experience representing homeowners a daily basis, that it does 
not seem like we are even on the same planet. For example, how can he ask us to 
believe that GMAC's foreclosure outcomes are all accurate when, as recently as a few 
weeks ago, I went into a foreclosure mediation proceeding in Maine where GMAC 
Mortgage certified [see Exhibit 11, p. 107, f c.) that it owned the loan and it turned 


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out that Freddie Mac owned the loan? [This is a common rather than an isolated 
example.} 

Much of what follows in this testimony is focused upon GMAC Mortgage, LLC, 
because its conduct has consumed so much of my time over the last few months. 
However, the conduct described here has been widespread among almost all of the 
major loan servicers and has been prevalent throughout the industry. 

II. CAUSES OF THE FORECLOSURE CRISIS IN THE LEGAL SYSTEM. 

The economic causes of the foreclosure crisis have been well documented in 
presentations before the Senate Banking Committee on November 16, 2010 by 
Diane Thompson of the National Consumer Law Center^ and the House Financial 
Services Committee on November 18, 2010 Professor Adam Levitan of Georgetown 
University and Julia Gordon of the Center for Responsible Lending, 2 as well as by 
other witnesses before this Committee. The aspect of the foreclosure crisis that I 
address here is its impact upon our judicial system and the homeowners caught up 
in it. The foreclosure crisis, as it is manifested in our judicial system, is defined by 
hundreds of thousands of perjurious affidavits that servicers have filed in summary 
judgment motions all over the country over at least the last several years, ^ These 
affidavits, signed by servicer employees, make the following dishone.st claims; 

• that they had custody and control of loan files when they didn't; 

• that they had personal knowledge of the contents of those files when they 
never even looked at them; 

• that they had personal knowledge of the truth of the contents of their 
affidavits when they never even bothered to read them; 

• that the copies of the critical loan documents attached to their affidavits 
were true and correct when they never bother to look at those attachments; 
and 

• that they appeared before notaries swear to the truth of the affidavits when 
they never did so. 

The servicers claim that these are mere "technical defects." They assert that the 
underlying facts seated in every one of these affidavits as to loan details, default 
letters being timely sent, and loan amounts due are true. To the contrary, 1 know as 
a matter of my own direct involvement in many foreclosure cases, my work with 
the MASH lawyers in Maine, and my daily contact with foreclosure defense lawyers 


http://banking.senate.gov/public/indox.cfm?FuseActio n--Hearing - S .Huaring&Hearin 
g n3^dlH(:b68S-clh(- 4eoa-941d-cf9d.S173B73a 


^ hnp://financialscM-v]ces.hoiise.gov/!leanngs/hearingnetajls,a.spx?NcwslD--13y6 

3 There are 23 judicial foreclosure states where the most common route to a foreclosure 
judgment is by a motion for summary judgment supported by sworn affidavit of servicer 
witnesses. Often a document called an "affidavit of debt" is required in non-judicial states as 
well. 


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all over the country, that the underlying facts in many of these affidavits simply are 
not true. 


A. ABUSE OF THE SUMMARY JUDGMENT PROCESS. 

1. HOW THE SUMMARY JUDGMENT PROCESS WORKS. 

An understanding of the summary judgment process in foreclosure cases is 
required in order to understand what is happening in these foreclosure cases. Rule 
56 ofthe Federal Rules of Civil Procedure (Exhibit 1 at page 23}'^ provides a process 
for avoiding trials when there is no genuine issue as to the material facts at issue in 
a lawsuit. In the application for summary judgment, in lieu of witnesses appearing 
in person to be sworn in and to testify, the testimony of a witness is presented by a 
sworn affidavit. It is important to note that Rule 56 requires that these affidavits, 
without exception, be based upon the personal knowledge of the witnesses signing 
them. The Rule permits only "admissible evidence". 

Rule 56 permits no exceptions or lower standards for foreclosure cases. In a 
foreclosure ca.se where an unopposed motion for summary judgment is filed, the 
only evidence in front of the judge is that mortgage servicer's employee's affidavit. 
Its honesty and integrity are crucial to a fair and just decision being made by a 
judge whether to enter a judgment of foreclosure that will result in the eviction of a 
family from its home. In the 94% or more of the cases where homeowners are 
unrepresented, it is likely that judgments of foreclosure will be entered based upon 
those dishonest affidavits. 

In normal times, the summary judgment process should be ideally suited to 
foreclosure cases. This was the case back In the 1980s and 1990s when I was 
representing banks and the FUlC. These are not normal times, however. The utter 
chaos created by the loan securitization Industry and perpetuated by the mortgage 
loan servicing industry means that such elemental facts as the identity of the party 
who really has the right to enforce the loan are often in doubt. There is often doubt 
about who possesses the note and what indorsements of it have been made; the 
concepts of possession and indorsement are key components of the question of 
who has the right to enforce the note. In addition, there is often doubt as to 
whether a proper notice of default was sent to the homeowner in a timely fashion. 
And, most important, there is often doubt as to whether a servicer has properly 
accounted for tlie payments made by the homeowner or has pumped up the 
homeowner's loan balance by improperly adding junk fees to the amount claimed 
to be due. 

With all of these potential issues, it is critical that the servicers offer only 
those witnesses who are in a position to have the knowledge and experience 


^ The Maine Rules of Civil Procedure for state court proceedings are almost identical to the 
Federal Rules, and most states have similar rules of their own. 


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required to check the loan documents, check the servicers' underlying files, and 
provide accurate and honest evidence of the true facts relating to its loans. That 
person must be a servicer employee who would be capable of testifying in a real 
trial in court and able to vouch for the accuracy of its business records documenting 
the loan balances, not a just back-office functionary whose principal job is to sign 
papers. 


2. HOW THE SUMMARY JUDGMENT PROCESS IS ABUSED BY 
MORTGAGE LOAN SERVICERS. 

Jeffery Stephan of GMAC Mortgage, LLC represents the servicer industry's 
refusal to meet the requirements of a summary judgment affidavit. He had no 
function within GMAC other than to sign papers, including summary judgment 
affidavits. It is has been cheaper for GMAC to pay Stephan a low wage to sign papers 
than to hire and train a sufficient number of employees so that only employees who 
actually have the requisite personal knowledge of the critical facts will be signing 
its summary judgment affidavits. 

An example of one of Stephan's affidavits Is attached as Exhibit 2 at page 28. 
To an unsuspecting eye, the affidavit looks straightforward and appears to entitle 
Fannie Mae to judgment. I deposed Stephan in that case on June 7, 2010, and a 
summary of the transcript and the transcript itself are attached as Exhibits 3, at 
page 33 and 4 at page 37. His testimony was astonishing. When Stephan says in his 
affidavit that he has personal knowledge of the facts stated in his affidavit, he 
doesn't. When he says that he has custody and control of the loan documents, he 
doesn't. When he says that he is attaching "a true and accurate" copy of a note or a 
mortgage, he has no idea if that Is so because he does not look at the exhibits. When 
he makes any other statement of fact, he has no idea if it is true.^ When the notary 
says that Stephan appeared before him or her, he didn't, and when the notary says 
that Stephan was sworn, he wasn’t. 

GMAC Mortgage filed thousands of Stephan's affidavits in foreclosure cases 
all over the country in cases Involving Its own loans as well in cases where it was 
servicing loans for Fannie Mae, Freddie Mac, and trustees of mortgage-backed 
securitized trusts. This misconduct was not a recent development at GMAC 
Mortgage— it has been going on at least since 2004, well before the occurrence of 
the foreclosure crisis. This latter fact is evidenced by the sanctions imposed upon it 
in a Florida case in 2006 defended by Attorney Kowalski who is also testifying 
before you today. Copies of his motion attacking a 2004affidavit just like Stephan's, 
the related court sanctions order against GMAC, and its in-house counsel's directive 
to fix the problem [which was ignored) are attached as Exhibit 5. 


Stephan asserts that the only thing that he does with an affidavit is to check "the figures" 
in the affidavit against a computer screen, but he has no knowledge of how those figures are 
created because he has no knowledge of how data is put into the system and has no 
knowledge of how the accuracy and security of the system is maintained. 


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I know from my personal experience over the past two and one half years 
that this kind of servicer fraud-upon-the-court activity is not isolated to GMAC 
Mortgage. It has been the norm across the entire Foreclosure industry, including the 
other servicers represented here today, JPMorgan Chase and Bank of America. 

3. HOW THE SUMMARY JUDGMENT PROCESS IS ABUSED BY 
THE LAWYERS REPRESENTING THE SERVICERS. 

As Stephan explained in his deposition, it is the servicers’ lawyers who 
prepare the summary judgment affidavits. A quick look at the first lines of 
Stephan's affidavit (Exhibit 2 at page 28) reveals the first sign of lawyer 
misconduct. When GMAC's lawyer prepared that affidavit, the name of the affiant 
was left blank, meaning that the lawyer did not know who was going to sign it 
Without knowing who will be signing the summary judgment affidavit, the lawyer 
cannot fulfill his or her professional responsibility to know that the affiant is a 
competent witness and is presenting sworn statements truly based upon his or her 
personal knowledge. 

The second obvious sign of servicer lawyer misconduct is that the affidavit 
discloses that the witness will be a "Limited Signing Officer." Any responsible 
lawyer seeing that title should be suspicious as to whether such a witness is 
anything more than a mere paper signer and as to whether that signer has the 
personal knowledge of the facts as required by Rule 56. 

When I was representing banks and the FDIC, 1 Firmly believed that it was my 
professional duty to present summary judgment affidavits to the courts only where 
I believed that the facts contained in those affidavits had evidentiary support. A 
lawyer cannot fulfill that duty without knowing who the person is for whom an 
affidavit is being prepared and without satisfying himself or herself that chat person 
is in a position to have personal knowledge of the facts being stated, In my opinion, 
it is not ever proper for a lawyer to prepare and present a summary judgment 
affidavit without knowing the identity of the witness in advance and without 
knowing what it is about that person's job functions that qualify him or her to 
present critical evidence to the court. No lawyer would put a witness on the stand 
in a courtroom trial without first determining his competence to testify, and no 
lawyer should offer an affidavit of a witness on a summary judgment motion 
without first making the same determination. 

These lawyers for the servicers are preparing and filing hundreds and often 
thousands of these affidavits annually. Yet they close their eyes to their professional 
obligations as officers of the courts they are working in to know that they are 
presenting honest evidence. 

B. ABUSE OF THE BANKRUPTCY PROCESS. 

Many foreclosures result from lost jobs, divorce, or illness resulting in 
unaffordable medical expenses. These same factors result in many debtors filing 
for protection under Chapter 13 of the Bankruptcy Code. Thus, many foreclosures 


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are dealt with through the bankruptcy system. A 2008 study by Katherine Porter, 
Esq., currently a visiting professor at Harvard Law School, documented widespread 
and systemic abuse by servicers in the bankruptcy mortgage claims process, ^ Since 
the publication of Professor Porter's study of over 1700 Chapter 13 cases, the 
misconduct of the servicers has not only continued, it has increased to the point 
where the United States Trustee Program (a unit of the Justice Department] has 
recently begun to focus special attention on these abuses.'^ 

In my private practice days, 1 often represented by bank and creditor clients 
in the Bankruptcy Court, and again I have been shocked by the abuses occurring in 
that court system. My current work with homeowners and their lawyers in 
foreclosure cases has revealed a level of servicer abuse and misconduct in the 
Bankruptcy Court that, not unsurprisingly, parallels the misconduct in state court 
foreclosure proceedings described above. Professor Porter’s study details well the 
abuse of servicers in bankruptcy in how claims amount are improperly calculated 
in fees arc improperly charged to homeowner loan accounts. What I want to 
address here is the abuse of servicers in documenting their standing to even assert 
secured claims against homeowners in bankruptcy. 

1. HOW FORECLOSURES WORK IN BANKRUPTCY. 

The requirement for a foreclosing party to document its mortgage claim 
against a homeowner in bankruptcy is similar to what is required in the summary 
judgment process. The servicer is required to file on behalf of the mortgage holder 
a proof of a secured claim documenting proof that the mortgage holder really does 
hold the home owner's note and mortgage and really does have the legal right to 
enforce the mortgage documents. If a mortgage holder seeks to foreclose within 
the context of a Chapter 13 proceeding, it is required to file a motion for relief from 
the automatic stay provisions of Section 362 of the Bankruptcy Code (11 U.S.C. 
§362] In order to obtain Bankruptcy Court permission to pursue a state court 
foreclosure proceeding. These bankruptcy motion papers are similar to those filed 
in a motion for summary judgment and must include a servicer's affidavit similar to 
that required for a summary judgment proceedings. The servicers are routinely 
presenting dishonest claims in these bankruptcy filings, just as they are routinely 
doing so in the summary judgment proceedings. 

2. HOW THE BANKRUPTCY PROCESS IS ABUSED BY SERVICERS 
AND THEIR LAWYERS. 

A series of case filings by JPMorgan Chase illustrate how servicers are 
abusing the bankruptcy process in pursuing foreclosures in that forum. A 
chronology of the illustrative filings prepared by Attorney Linda Tirelli of New York 


^ Katherine Porter. 2008. "Misbehavior and Mistake in Bankruptcy Mortgage Claims" 
hup://works.hepre .s,s,t:oin/kalherinc porter/ 1 / 

^ hllp://w ww.iiyl:inie,s. com/201 0/1 1 /28/bus inoss/28gret.htini ?rel-bu.sino ss 


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is attached to this document as Exhibit 5 at page 51. Spanning a period of over two 
years and continuing even today JPMorgan Chase has engaged in pattern of filings 
in the Bankruptcy Court for the Southern District of New York that is simply 
breathtaking in the scope of dishonest and deceptive practices that it reveals. 

I became familiar with the conduct of JPMorgan Chase and the series of cases 
chronicled by Attorney Tirelii as a result of a foreclosure proceeding filed in Maine 
by IPMorgan Chase as servicer for a loan alleged to be owned by Deutsche Bank, 
The Maine case is Deutsche Bank National Trust Company, as Trustee for Long Beach 
Mortgage Loan Trust 2005-WL2 v. MacDonald (Me. Dist. Ct. RE-08-385, Bidd.). In 
this case, |PMorgan Chase filed a motion for summary judgment and supported it by 
an affidavit of a person claiming to be one of its officers. In that affidavit, the 
jPMorgan Chase officer asserts that JPMorgan Chase once owned the loan and that 
it transferred it to Deutsche Bank in 2009, It attached to its officer's affidavit is a 
mortgage assignment purporting to evidence that transfer. When I examined the 
Pooling and Servicing Agreement that created the Deutsche Bank trust back in 
2005, ^ it became clear that Deutsche Bank could not have purchased this loan from 
jPMorgan Chase in 2009 because that trust closed to the purchase of any new loans 
back in 2005. 

Having been alerted to the probable fraudulent nature of the JPMorgan Chase 
affidavit, upon further research I found the In re Neurcase in the Bankruptcy Court 
in the Southern District of New York described by Attorney Tirelii in Exhibit 5. In 
that case, involving the same parties, and exactly the same set of fraudulently 
created facts, the U.S, Trustee's office intervened and filed a motion for sanctions 
against JPMorgan Chase. In response, and in related depositions, JP Morgan Chase 
admitted that it had never owned the loan in question and that the purported 
assignment from it to Deutsche Bank was fictitious. 

Even after admitting in In re Nucr in New York that It had created a fictitious 
chain of transfers in an effort to prove the right of Deustche Bank to enforce the 
Nuer loan, JPMorgan Chase made exactly the same dishonest and fictitious claim in 
the MacDonald case in Maine in an attempt to prove Deutsche Bank's right to 
enforce the MacDonald loan. When confronted by me in Maine, JPMorgan Chase 
withdrew its summary judgment motion. Had no homeowner lawyer been present 
in this Maine case, no judge would have ever known about JPMorgan Chase’s 
attempted fraud upon the court, and a judgment of foreclosure would have been 
entered against Ms. MacDonald, 


The Pooling and Servicing Agreement is the telephone book sized document that creates 
the securitized trust and includes the provisions regarding the servicer's duties and 
compensation. Many of these Pooling and Servicing Agreements, known in the industry as 
PSAs, are publicly available on the SEC Edgar website. Yet as a part of their pattern of 
obstructive conduct, loan servicers, including IPMorgan Chase, routinely refuse to produce 
these PSAs in pre-trial discovery, claiming that they are proprietary documents that must 
be protected by confidentiality orders. 


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While the egregious misconduct of JPMorgan Chase is highlighted here, the 
pattern is widespread across the industry. 

C. THE ECONOMIC AND OTHER REASONS FOR THE ABUSE OF 

SUMMARY JUDGMENT AND BANKRUPTCY PROCESSES BY SERVICERS 
AND THEIR LAWYERS. 

One primary explanation for the plague of dishonest foreclosure affidavits is 
the desire of the servicers and their lawyers to maximize the amount of money they 
make on each foreclosure case. It is cheaper for the servicers and their lawyers to 
submit a dishonest affidavit than it is to take the time required to prepare and 
submit one that is honest and that respects the civil rules of procedure relating to 
motions for summary judgment. 

The testimony of Professor Adam J. Levitan presented to the House Financial 
Services Housing and Community Opportunity Subcommittee on November 18, 
2010, beginning on page 7, presents a detailed outline of how servicers are paid for 
servicing mortgage loans. In a nutshell, that compensation scheme provides the 
greatest economic benefit to servicers and their lawyers when they foreclose as 
swiftly as possible using the least possible amount of manpower. GMAC Mortgage, 
in its testimony to that same House Subcommittee, essentially admitted that it had 
cut corners when Mr. Marano stated that, with its 6 years of misconduct now fully 
exposed, it finally "has increased the number of employees handling foreclosure 
documentation,"^ 

Saving time and expense and maximizing fee revenue also drives the lawyers 
who prepare the summary judgment motions and affidavits for the servicers. They 
are paid on a flat fee basis, meaning they receive the same amount of compensation 
for each foreclosure case, and without regard to whether one case takes more 
lawyer time than the next.^*^ That incentive drives them to use paralegals and lower 
level employees to prepare summary judgment documents and to minimize the 
amount of lawyer time devoted to any case. From my own experience, I know that it 
takes substantial time to properly prepare a summary judgment motion and to 
communicate with the witness who signs the affidavit, just as it does when 
preparing a witness to testily in court. After all, that affidavit literally replaces a 
witness's testimony at trial. The fee structure imposed upon their lawyers by the 
servicers causes those lawyers to be unwilling to devote the needed time to prepare 
and present affidavits that are honest and that respect the Rules of Civil Procedure. 


^ Written Testimony of Mr. Thomas Marano, Chief Executive Officer, Mortgage Operations, 
Ally Financial Inc. before the Subcommittee on Housing and Community Opportunity, 
Committee of Financial Services, November 18, 2010. 

http://rinaiicialservices.hou.s(;.gov/llearings/hearingPetails.aspx?NewsID=:1376 

The servicers also grade these lawyers on how fast they push the foreclosures through 
the legal system and reward those who are the most swift with substantia] bonus fee 
payments. 


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In addition, the communications systems that servicers have imposed upon 
their lawyers make it almost impossible for those lawyers to fulfill their 
professional responsibility in presenting honest summary judgment motions. Most 
of the major servicers require their lawyers to use computer systems only for 
communications between the lawyers and the servicers. With rare exceptions, 
telephonic communications are discouraged, and they are often even prohibited. 
Thus major impediments have been placed in the way of any effort that a 
responsible lawyer might make to communicate with a servicer witness about 
preparing and signing an honest summary judgment affidavit. This convoluted 
communication system is also driven by economics and by the desires of the 
servicers to use the least amount of manpower possible on any given foreclosure. 

A second major reason for the abuse of the summary judgment and 
bankruptcy processes by servicers is that the documents needed to prove the 
mortgage loan claims of their clients often do not exist or are defective. Servicers 
try to cure this problem by creating fictitious documents. A simple example again 
involves GMAC’s Jeffery Stephan. In addition to signing summary judgment 
affidavits, he also signed note indorsements and mortgage assignments. In one of 
our GMAC cases in Maine, he attached to one of his summary judgment affidavits a 
never-before-seen note indorsement. We knew instantly that it was fictitious 
because it showed a chain of transfers not permitted by the Pooling and Servicing 
Agreement in that case. When we confronted GMAC with this fact in opposition to 
its motion for summary judgment, its lawyers reversed course and claimed that 
Stephan's indorsement was a mistake, and they then presented us with two new 
indorsements [that raise issues of their own). 

Professor Adam Levitan, in Section HI of his House Finance Committee 
written testimony beginning on page 19, lays out in detail the documentation 
problems existing in the foreclosure industry. In the face of such problems, the 
desire of the servicers to foreclose quickly and cheaply leads them to attempt to 
create fictitious cures for these documentation problems, and they know that they 
can got away with it in the vast majority of cases where homeowners have no legal 
representation. 

C. DISHONESTY, DENIAL, COVER-UP AND DEFIANCE IN THE MORTGAGE 
SERVICING INDUSTRY. 

1. DISHONESTY. 

It was dishonest for GMAC Mortgage, beginning at least as early as 2004, to 
submit affidavits to the courts in Florida where its officers stated that they had 
personal knowledge of defendants' loan files, that they had examined their loan 
files and determined that the allegations of the related foreclosure complaints were 
true, and that they knew the complaints accurately reflected the amounts due. That 
dishonesty was admitted when attorney Kowalski deposed the GMAC employee 


httn://finan(:ial.sei-vices-houso.gov/H parings /hearin ^Det ail,s.aspx?NcvvslD- 1 376 


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who made those statements in 2006 and she admitted that none of those 
statements were true. See Exhibit 6, pages 64-76.} Any possible room for 
denial was removed when the judge in that case specihcally found that "GMAC 
Mortgage Corporation submitted false testimony" (Florida Order, Exhibit 7, page 
79), sanctioned it for that dishonesty, and ordered it to file proof that it had 
modified its corporate practices so that future affidavits would be accurate and 
honest. 

It was dishonest for GMAC Mortgage to continue these exact same practices 
after having filed with that judge in the Florida court a document entitled, "A Policy 
Directive From the Legal Staff," certified on June 6, 2006 (Exhibit 8 at pages 85-86), 
by an "Associate Counsel - Legal Staff, claiming a corporate-wide correction of 
those practices. The extent of the dishonesty in the presentation of this never- 
followed policy statement is revealed by the fact that the GMAC witness in the 
Florida 2006 case, Margie Kwiatanoski, went on to become Jeffery Stephan’s 
supervisor as head of the GMAC Mortgage Document Signing Department in 2008. 

Further, GMAC had the audacity to argue to the United States District Court in 
Maine on August 10, 2010, that, because the 2006 Florida order only related to 
"servicing of loans 'within the state of Florida'" its relevance to GMAC's identical 
dishonesty in Maine cases was "significantly overstated." (See Exhibit 9 at page 94, 
Is full par.). GMAC apparently believes that it was acceptable for it to go on 
submitting dishonest affidavits in all other states since it had not yet been caught 
and sanctioned in those states. For over six years now, GMAC has manifested a 
belief that it is not bound by the rule of law relating to the foreclosure of the homes 
of American families. 

As the fifth largest loan servicer in the country servicing 2.4 million loans 
(according to the testimony of Thomas Marano), GMAC Mortgage has, since at least 
2004, filed thousands upon thousands of these dishonest summary judgment 
affidavits in courts all across the country. It has now asked a subcommittee of this 
Chamber to believe the loan detail facts in every one of those affidavits was true 
and that not a single mistake occurred. Both common sense and evidence such as 
that in the recent case reported In the Cleveland Plain Dealer on October 19, 2010, 
involving three successive GMAC Mortgage foreclosures on an Ohio mortgage 
where there was no default (Exhibit 10, page 100), should permit no one to accept 
that assertion to be true. 

In how many of these GMAC cases were affidavits submitted as to loan sums 
due where payments were improperly recorded? In how many were forced-place 
insurance policies improperly imposed by it at homeowner expense (as we have 
seen in Maine)? In how many were default letters never sent? In how many were 
the default letters utterly inadequate? In how many cases was the plaintiff named 
by GMAC not even the owner of the loan?t2 We cannot know the answers to these 


“ Attached hereto as Exhibit 11, page 105, is a Certification of Mortgagee signed by |eff ery 
Stephan on July 25, 2010 (almost seven weeks after his June 7, 2010 deposition) certifying 


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questions because of GMAC's failure to meet the "rule of law" requirements for the 
presentation of honest affidavits by witnesses who really had personal knowledge 
of the required facts. 

2. DENIAL. 

There is a persistent refusal in the servicing industry to he honest about its 
misconduct. Even at the House Finance Committee hearing on November 18, 2010, 
Ally Financial's Thomas Marano stated "Based upon our review to date, no loan was 
foreclosed unless the borrower was in default.” Contrast that to the above cited 
report from the Cleveland Plain Dealer of a house wrongfully foreclosed upon by 
GMAC three times. Even without this example, given the utter chaos in the servicer 
industry, it defies credulity to believe that there Is not one single case in which 
GMAC Mortgage has made a mistake. It is this refusal of GMAC Mortgage and the 
rest of the foreclosure industry servicers to recognize their misconduct and 
mistakes that makes it unlikely that the industry will reform itself without external 
intervention. Rather, it will seek to cover up that misconduct whenever it can. 

3. COVER-UP. 

When GMAC Mortgage was confronted with the evidence of Stephan's 
dishonest affidavits in Maine, its first effort was an attempt to silence me rather 
than to have its lawyers immediately go to the Maine courts and admit that GMAC 
had presented dishonest affidavits from Jeffery .Stephan all across the State of 
Maine. I deposed Stephan on June 7, 2010. On |une 22, 2010, GMAC replaced its 
lawyers in that $85,000 foreclosure case with national litigation counsel out of 
Birmingham, Alabama, and a major national law firm based in Portland, Maine. 
Their first action in that case, taken on June 25, 2010, was not to notify the court 
that false evidence had been presented and to seek to withdraw Stephan's 
dishonest affidavits. Rather their first act was to file a motion for protective order in 
an attempt to bury the Stephan transcript. See Exhibit 16, page 131. 

By its |une 25, 2010, motion for protective order, GMAC Mortgage sought the 
imposition of money sanctions against me for what it called my "malicious 
dissemination" of Stephan's deposition transcript to other lawyers around the 
country defending homeowners in GMAC foreclosure cases, liven though I have 
been working as a volunteer lawyer for the past two and one half years and have 
not made a single penny off the sharing of Stephan's transcript with other 


that GMAC owns the loan in question, when a check on the Freddie Mac website (see Exhibit 
12, page 1 08) shows that Freddie Mac owns the loan. This one incident is by no means an 
isolated example of this kind of conduct from GMAC. 

Rule 3.3(c) of the Rules of Professional Conduct for Maine lawyers requires that "If a 
lawyer, the lawyer’s client, or a Avitness called by the lawyer, has offered material evidence 
and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial 
measures, including, if necessary, disclosure to the tribunal." 


13 



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lawyers^^ GMAC attempted to smear me with the claims that "Defendant's attorney 
wants the ability to disseminate discovery From this case for his own commercial 
purposes" and that I was seeking to "profit from litigation adverse to lenders." In 
addition, GMAC's new lawyers sought a court order to compel me to retrieve 
Stephan's transcript from those lawyers with whom I had shared it and to prevent 
me from using in any other GMAC case, even in other GMAC cases with Stephan 
affidavits where I was representing the homeowners. That motion was utterly 
unfounded and unsupported as is shown in our opposition to it, Exhibit 13 at page 
111, and by the detailed order of our court in Maine denying it on September 24, 
2010, and instead imposing sanctions against GMAC Mortgage for its bad faith 
conduct. See Exhibit 14 at page 122. 

This GMAC Mortgage cover-up attempt came four years after the identical 
misconduct was sanctioned in Florida in 2006 (Exhibit 7 at page 78] and six months 
after it was again revealed in another deposition of Stephan in another Florida case 
on December 10, 2010. This history of dishonesty in GMAC's foreclosure practices, 
its effort to silence a lawyer who exposes those practices, and its refusal just a week 
ago in testimony before this Chamber to recognize the extent of its mistakes, 
compels the conclusion that the mortgage servicing industry cannot be trusted to 
reform itself.^"' 

4. DEFIANCE. 

In the statement of Ally Financial's CEO of Mortgage Operations, Thomas 
Marano, to the Mouse Committee on Financial Services on November 18, 2010, he 
asserted that, in cases "[w]here the original affidavit was substantially correct, we 
are generally seeking the court’s permission to proceed with the prior judgment." 
That is a categorically untrue and misleading statement. There are a significant 
number of cases in Maine where GMAC has obtained summary judgments but 
whore no foreclosure sales have yet occurred. In not a single one of those cases has 
GMAC sought permission to proceed with a sale based upon such a judgment. We 
know of at least one recent Instance (within the last month) where GMAC 
conducted such a sale without seeking court permission. 

More importantly, we know that GMAC is strenuously resisting our efforts in 
Maine to obtain a court order stopping it from conducting sales of homes in all 


In fact, I have spent a fair amount of my own money sending copies of that transcript to 
other lawyers for their use in court proceedings in other states where GMAC Mortgage was 
continuing foreclosures based upon Stephan's dishonest affidavits. 

It also should be noted GMAC Mortgage delayed for two and one half mouths before 
notifying Freddie Mac of the discovery of Stephan's false affidavits. He was deposed on June 
7, 2010, and it was not until August 25, 2010, that GMAC reported the problem to Fannie 
and Freddie. See Kxhibit 15 at page 129. And it delayed for three more weeks before 
announcing on September 17, 2010 that it was halting sales of and evictions properties 
taken through its flawed foreclosure process. 


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cases where Che foreclosure judgments are based upon Stephan's dishonest 
affidavits. This opposition, in violation of its own CEO’s statements less than a week 
ago to a subcommittee of this Chamber, evidences its defiant refusal to 
acknowledge and correct is dishonest practices. GMAC's present conduct in Maine 
evidences a continuation of its six-year pattern of ignoring and defying Che rule of 
law in the foreclosures conducted by it. 

III. EFFECTS OF THE FORECLOSURE CRISIS 

A. IMPROPER FORECLOSURES ARE OCCURRING. 

I know from my work in Maine with many foreclosure defense lawyers that 
we are seeing a significant number of foreclosure actions where the claims of the 
servicers do not support judgments of foreclosure being sought. Knowing too that 
we, as lawyers, are seeing only a fraction of the foreclosure cases being filed, it is 
virtually certain that a significant number of improper foreclosures have been 
occurring, both in Maine and all over the country. I hear and see reports of wrongful 
foreclosure actions on virtually a daily basis in my daily communications with 
lawyers from around the country. I have no statistics to document the volume of 
these improper foreclosures apart from first hand experience and a constant flow of 
anecdotal reports. Diane Thompson of the National Consumer Law Center, 
beginning on Page 13 of her written testimony to the Senate Banking Committee on 
November 16, 2010,^^ cataloged the various kinds of servicer errors that are causing 
these wrongful foreclosures. 

B. HOMEOWNERS ARE BEING DENIED LOAN MODIFICATIONS THAT 
WILL BENEFIT BOTH THE HOMEOWNERS AND THE OWNERS OF 
THEIR LOANS. 

Those of us attempting to help homeowners obtain reasonable loan 
modifications are outraged by the obstructive tactics of the loan servicers. All of the 
major servicers have signed contracts with the Treasury Department in which they 
agree to follow HAMP directives and rules in evaluating homeowner eligibility for 
loan modifications under HAMP. When servicers violate these directives and rules, 
as they so often do, they are breaching their contracts and attempting to operate 
outside of the rule of law that applies to their conduct. 

Servicers often note that not all homeowners are eligible for loan 
modifications because they cannot afford even reduced payments. 1 do not entirely 
disagree with that assertion as to some homeowners, but 1 must then call upon the 
servicers to explain why it is so enormously difficult for us even to negotiate short- 
sale and decd-in-lieu-of-forcclosure agreements with them under the HAFA 


16 

htt:p://ba nking.senate.gov/public/in d e x.cfm?Fu.scActiori-|{ea rings. TestimQny&nea 
ri ng ID^dmrb6nS-clhr-4ee;>041d-cf9d5173E73a&WitnGss ID=d9(]m2:^;]- nSd7- 
400f-h4.Sa-104a412e2202 


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program. When they obstruct or refuse to allow even these kinds of transactions, 
their motivation to pursue the money generated for them in foreclosures over lower 
sums earned in negotiated resolutions becomes abundantly clear, 

The previously mentioned testimony of Professor Adam Levitan to the House 
Finance Committee and of Diane Thompson to the Senate Banking Committee last 
week describe in considerably more detail how such loan modifications serve not 
only homeowners, but also the investors in the securitized trusts. The testimony of 
both of these witnesses also describes in detail the economic incentives that drive 
the servicers to favor foreclosures over loan modifications or other negotiated 
resolutions. 

C. THE JUDICIAL SYSTEM IS BEING DAMAGED. 

1. THE VOLUME OF FORECLOSURE CASES IS EXCESSIVE. 

State court systems all over the country are overwhelmed by the tremendous 
volumes of foreclosure cases being filed. This crushing case load could not come at a 
worse time, with state budgets cuts including state judicial budgets cuts, 
Courthouses are being closed, judicial vacancies are going unfilled, court staffs are 
being reduced and court hours are being curtailed. 

Foreclosure cases are among the most complex and paper-intensive cases 
faced by lower level trial courts. They are time-consuming cases to resolve. 
Foreclosure cases that are improperly filed result in contested summary judgment 
motions, pre-trial discovery disputes, and trials that should not be required. 
Similarly, foreclosures that should be resolved by loan modifications and never put 
into the foreclosure litigation process at all impo.se additional and unneces.sary 
burdens upon the state court system.s. State foreclosure mediation program.s arc 
.showing growing signs of success, but even there, the delay and obstructionist 
tactics of the .servicers drag those mediation proceedings out far longer than should 
be necessary, causing unnecessary expense for the courts and delaying access to the 
mediation process for all homeowners. 


The servicers routinely abuse the pretrial discovery system with extraordinary delaying 
tactics, and voluminous objections to reasonable discovery requests, even objecting 
constantly to requests for production of the original promissoiy note. These obstructive 
discovery tactics further burden the court systems with protracted court hearings of 
discovery disputes, In addition this tactic increases legal expense for homeowners and 
decreases their ability to fairly defend themselves. 


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2. THE CONFIDENCE OF INDIVIDUAL CITIZENS THAT THE 
JUDICIAL SYSTEM WILL TREAT THEM FAIRLY IS BEING 
DESTROYED. 

In a recent article entitled "Justice for Some", Nobel laureate economist 
Joseph Stiglitz declared recently that it is the "universally accepted hallmark of an 
advanced, civilized society" that "[t]hc rule of law is supposed to protect the weak 
against the strong, and ensure that everyone is treated fairly.’'^*^ As Stiglitz goes on 
to note, "[p]art of the rule of law is the security of property rights" and that that, to 
some banks, the foreclosure of homes where the prescribed legal process is "just 
collateral damage." 

While there have been expressions of concern about the outrageous abuse of 
our judicial system by the nation's largest financial institutions, few in positions of 
leadership in our government have been willing to label this crisis as the scandal 
that it truly is.^'* Instead, mostly what we hear from our government leaders is a 
steady drumbeat of expressions of concern about what the "foreclosure problem" 
might do to our economy. To these leaders, the abuse of our most weak and 
vulnerable citizens through takings of their homes outside of the process required 
by the rule of law is only a footnote to their concerns about economic issues. Other 
than in a few isolated state court civil sanctions decisions, there have been no 
indictments or punishments of our financial institutions and their loan servicers for 
their scandalous and dishonest conduct. 

Our weak, vulnerable and mostly unrepresented homeowners are left with 
the reality that our once trusted financial institutions have filed huge volumes of 
false foreclosure affidavits for many years in courts all across the country, and are 
only now being publicly exposed. These homeowners are also being left to observe 
that neither Federal nor State authorities have any willingness to pursue criminal 
prosecutions for this dishonest conduct. They have the sure knowledge that if they 
ever lied to the courts, as the banks and their loan servicers have lied to them on 
such a massive scale, they would be charged with perjury and severely punished. As 
Stiglitz notes at the end of his article, "the proud claim of 'justice for all’ is being 
replaced by the more modest claim of 'justice for those who can afford it"’ 

More than occasionally I have heard, and had other lawyers report, 
expressions of doubt by homeowners they can get a fair shake if they go to court 
against the servicers and the banks and GSE clients like Fannie Mae and Freddie 
Mac. This growing doubt in the ability and willingness of our justice system to 


IP Josph SligMtz, Justice for Some. hllp: / /vvww.proiect- 
sy ndicatc.org/ canimontary/stiglitzl31/Englt5 h 

Even the November Oversight Report of the Congressional Oversight panel dated 
November 16, 2010 benignly refers to the problem as being one of "mortgage 
irregularities”. hU p://cop,seriat8.g ov/re ports/library/re port -l 1161 0-cop. efrn 


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operate within "rule of law" principles causes tremendous, but immeasurable, 
damage throughout our society. 

IV. SOLUTIONS. 

Beginning on page 12 of her written testimony before the House Financial 
Services Subcommittee on Housing and Community Opportunity on November 16, 
2010, Julia Gordon of the Center for Responsible Lending provided a 
comprehensive statement of the remedies that are required to resolve the situation 
addressed by my testimony. 1 highlight only a few of those solutions here, but they 
are all important, The common theme among all of these solutions is that the 
servicers' financial incentives to foreclose must be replaced with incentives to 
negotiate loan modifications whenever possible and graceful exit strategies when 
modifications arc not possible. A key tool in developing the incentives toward 
negotiated resolutions is to insist that the rule of law must fully apply to our 
financial institutions and their .servicers in all aspects of their foreclosure activities 
so that they will be required to bear the full costs of honestly conducted 
foreclosures when they elect to avoid the loan modification process. 

A. APPROPRIATE FUNDS TO SUPPORT LEGAL REPRESENTATION FOR 
HOMEOWNERS. 

1 place this item as one of the Urst priorities because it is an urgent need and 
immediately achievable goal. Legal services organizations around the country have 
been critical links in the effort to provide representation to homeowners in 
foreclosure. But for the existence of the Foreclosure Diversion Program at Pine Tree 
Legal Assistance in Maine, my work as a volunteer lawyer In expo.sing the dishonest 
conduct of GMAC Mortgage would not have been possible. The funding for that 
program is due to end in about six months. If that happens, the full time lawyers in 
that program will be gone, our ability to reach out to and u.se the services of about 
sixty private volunteer lawyers will be lost, and our ongoing training programs for 
foreclosure defense lawyers in Maine will be eliminated. 

It i.s the legal profe.s.sion that has exposed the massive and dishonest conduct 
of the foreclosure industry. The Dodd/Frank legislation authorized HUD to expend 
.$35 million to establish a Foreclosure Legal Assistance Program to provide funding 
to legal services organizations for homeowner representation, but Dodd/Frank did 
not appropriate those fund.s, and efforts to find Funding at HUD or elsewhere have so 
far been unsuccessful. What's more, that fund, which i.s to be directed at the 125 
hardest hit metropolitan areas, may not even help Maine becau.se of our rural 
makeup. Over the coming year, legal .services programs all over the country will be 
facing losses of funding to continue their critical foreclosure defense work. Simply 


20 

hLtp://ha nkin g,s en ate.go v/ public /J nde x.cfm?FusGArrion=Hearings .Testi mony&nea 
nne lD"df8 cb6BS-c'l hf-4eea-9 4 1 d-cf9d.51 73873a&WitrK'ss iD-d9dff]23a'05d7- 
400f-h4.5a-104a412o?.202 


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put, Congress must find the will to immediately appropriate the funds required to 
preserve all of these programs, in rural as well as in metropolitan areas. 

B. REQUIRE FANNIE MAE AND FREDDIE MAC TO FORECLOSE THE 
MORTGAGES OWNED BY THEM IN THIER OWN NAMES. 

Requiring Fannie and Freddie to foreclosure in their own name should be 
another simple and achievable goal. Maine's foreclosure mediation program kicks 
in immediately after a homeowner is served with foreclosure papers and requests 
mediation. As we try to negotiate loan modifications with servicers in those 
mediation proceedings, we are constantly being surprised to learn that plaintiffs 
claiming ownership of loans in foreclosure are not in fact the owners. Maine 
statutory and case law require that a foreclosure be prosecuted only by the owner of 
the loan, whereas Fannie Mae and Freddie Mac require their servicers to conceal 
their identities in foreclosure cases and to foreclose in the servicers' names. 

This deception by Fannie and Freddie obstructs foreclosure mediation efforts 
because, without knowing the true owner of the loan, neither the homeowner, his or 
her lawyer (if he or she is fortunate enough to have one) nor the mediator is able to 
know what loss mitigation programs might he available to the homeowner. The 
Fannie/Freddie deception also conceals from Congress and the public the true scope 
of their roles in the present foreclosure crisis. 

There is no good legal or public policy excuse for Fannie and Freddie to be 
permitted to carry on this deceptive and obstructive practice. The Federal Housing 
Finance Agency, which is responsible for the oversight of these GSEs, has the 
authority to require this change. 

C. REFORM HAMP TO REQUIRE PRINCIPAL REDUCTIONS. 

Diane Thompson, in her Senate Banking Committee te.stimony and lulia 
Gordon in her House Financial Services Housing and Community Subcommittee 
testimony, address this need in depth. As a lawyer working directly with 
homeowners, I am continually conflicted when I see clients accepting loan 
modification.s under the HAMP program. Many of their homc.s arc worth far less 
than the principal balances on their loans. They accept the modifications that are 
available out of emotional attachment to their homes, or often simply because the 
modified payment is less expensive than rent would be, yet they are going forward 
with a total debt amount that is very difficult to repay. vServicers repeatedly claim 
that HAMP is a failure becau.se there is such a high re-default rate. Simple logic tells 
us that a homeowner with a house far underwater in debt is going to have much less 
incentive to struggle to meet mortgage payments then he or she would be if the debt 
did not exceed the value of the house. Rational principal reductions will reduce re- 
defaults and will help rebuild homeowner economic security to the point where 
they may again become contributing members of our consumer driven economy. 

As recently modified, HAMP authorizes .servicers to offer principal 
reductions, but such reductions are not mandated. Until principal reductions are 


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mandated the program will remain crippled and our recovery from this foreclosure 
nightmare will be delayed. 

D. ENFORCE SERVICER CONTRACTUAL OBLIGATIONS UNDER HAMP. 

All servicer participants in HAMP are contractually obligated to comply with 
all of its provisions. Overwhelmingly, we see failures in compliance, and lawyers all 
over the country report the same experience. The obstructive approach taken to the 
HAMP modification process is hugely wasteful of the limited legal resources 
available to homeowners. Efforts to modify loans with the assistance of counsel 
routinely take three and four times as long as should reasonably be required, and 
the process is even worse for those who are unrepresented. HAMP modifications 
are not being offered before foreclosures are filed; HAMP modifications arc denied 
without adequate reason; homeowner paperwork is routinely and repeatedly lost; 
and there is a tremendous problem in getting the servicers to convert temporary 
modifications into permanent ones. Our experience in Maine is that. Bank of 
America is the worst offender in the program-we spend a truly disproportionate 
amount of our time in trying get Bank of America to comply with HAMP and the 
incidents of Bank of America abuse of homeowners under the HAMP program is the 
most egregious that we see. 

The Treasury Department is the agency responsible for enforcing servicer's 
compliance with HAMP. Despite the often reported and widely known abuses of the 
program by servicers, there is no evidence that Treasury has ever taken any 
enforcement action against any servicer. Pressure must be brought to bear on 
Treasury to require it to carry out Its oversight and enforcement responsibility. 

There is active litigation, and a split of decisions, all over the country as to 
whether homeowners can be treated as third party beneficiaries with the right to 
enforce the HAMP agreements. Such litigation and uncertainty should be eliminated 
by revisions to HAMP regulations to make it explicitly clear that homeowners are 
intended third party beneficiaries. If the regulators of the HAMP program will not 
enforce the servicers' obligations under tlie program, then homeowners simply 
must be given that right. 

D. REQUIRE THE IRS TO ENFORCE THE REMIC RULES. 

Homeowners have no direct stake in whether the Internal Revenue Service 
enforces the REMIC rules relating to the mortgage-backed securities trusts, yet they 
are being indirectly impacted. The REMIC rules required that mortgages be 
assigned to these trusts within a certain period of time at the establishment of the 
trusts. It is becoming increasingly clear that many of these trusts may have failed to 
meet this requirement. The blockbuster decision Kemp v. Countrywide Home Loans 
(Bankr. N.J. Adv. No. 08-2448, Nov. 16, 2010) that came out two weeks ago revealed 
that Countrywide routinely failed to transfer the notes on loans it made. The trusts 
try to solve this problem by obtaining the notes, indorsements and mortgage 
assignments just before, or sometimes during, foreclosure. This late acquisition of 


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the loans violates the RP'MIC rules, yet there is not hint of any enforcement by the 
IRS. 


Yet again, homeowners are watching the failure of the rule of law. They know 
that if they fail to pay their taxes or cheat on their tax returns, they will be 
prosecuted. But they see a double standard at work that allows the securitized 
trusts to escape tax penalties for their misconduct Even a threat of enforcement of 
the REMIC rules by the IRS could change the economic equation of foreclosures in 
such a way as to motivate the trusts and the servicers to begin to favor loan 
modifications over foreclosures. 

V. CONCLUSION. 

The rule of law is what preserves the stability of our democracy. As we allow 
the mortgage loan industry to circumvent the rule of law we show that corporate 
interests can get away with such massive dishonesty, and we thereby encourage 
more of it. As citizens see our largest financial institutions flaunt their violations of 
our legal systems, our citizens lose faith in these institutions and in their 
government Surely this loss of faith is what Is leading to the increasing volume of 
"strategic defaults" that the financial institutions so loudly condemn. 

There are remedies that can significantly Improve the foreclosure problem if 
the political will can be mustered to implement them and if regulators can be 
motivated to do their jobs. Appropriate prosecution of those responsible for the 
massive levels of dishonesty that have been exposed can help restore the loss of 
confidence in the legal system by those victimized by the abuses of the mortgage 
servicers. 

Thank you for this opportunity to share my thoughts and observations with 
you and for your interest in these problems. 


Thomas,^^bx, Esq. 

Maine Attorneys Saving Homes 

A joint project of Pine Tree Legal Assistance and 
The Maine Volunteer Lawyers Project 


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TESTIMONY OF THOMAS A. COX, ESQ. 
LIST OF EXHIBITS 




EX. NO. DESCRIPTION 

PAGE NO. 

1 Rule 56 of the Federal Rules of Civil Procedure 

23 

Stephan Affidavit in FNMA v. Bradbury dated August 6, 


2 2009 

28 

iSummary of Stephan depostion testimony in FNMA v. 

3 Bradbury 

33 

Transcript of Stephan depostion testimony in FNMA v, 


4 Bradbury 

37 

^Chronology of JPMorgan Chase filings in New York 


5;Bankruptcy Courts 

51 

iMotion for Sanctions against GMAC Mortgage in Florida in 


6:2006 

61 

Order for Sanctions against GMAC Mortgage in Florida in 


7 2006 

78 

SiGMAC Mortgage 2006 Policy Directive (not followed) 

82 

GMAC Mortgage Opposition to Sanctions Motion in Maine 


in 2010 discounting significance of Florida 2006 sanctions 


9 order. 

87 

Cleveland Plain Dealer October 19, 2010 regarding 


10:wrongful foreclosure actions by GMAC Mortgage. 

100 

iGMAC Mortgage false Certilficatlon of Mortgagee dated I 

llpuly 25, 2010 

105 

iFreddie Mac proof of its ownership of loan certified by 


12IGMAC as being owen by GMAC. 

108 

Opposition to GMAC Motion for Protective Order Against 


13 Cox 

111 

Maine Order against GMAC Mortgage denying its motion 


for protecitve order, findings its actios to be in "bad faith" 


14 land imposting sanctions 

122 

Report of GMAC Mortgage report to Freddie Mac on August 


15125, 2010 of affidavit isssues. 

129 

16 GMAC Motion for Protective Order Re Stephan Transcript 

131 




314 


Exhibit 1 



315 


Last reviewed and edited January 5, 2010 
Includes amendments effective August 3, 2009 

RULE 56. SUMMARY JUDGMENT 

(a) For Claimant. A party seeking to recover upon a claim, counterclaim, or 
cross-claim or to obtain a declaratoiy judgment may move with or without 
supporting affidavits for a summary judgment in the party’s favor upon all or any 
part thereof. A motion for summary judgment may not be filed until the expiration 
of 20 days from the commencement of the action. 

(b) For Defending Party. A party against whom a claim, counterclaim, or 
cross-claim is asserted or a declaratory judgment is sought may, at any time, but 
within such lime as not to delay the trial, move with or without supporting 
affidavits for a summary judgment in the party’s favor as to all or any part thereof. 

(c) Proceedings on Motion. Any party opposing a motion may ser\'c 
opposing affidavits as provided in Rule 7(c). Judgment shall be rendered forthwith 
if the pleadings, depositions, answers to interrogatories, and admissions on file, 
together with the affidavits, if any, referred to in the statements required by 
subdivision (h) show that there is no genuine issue as to any material fact set forth 
in those statements and that any party is entitled to a judgment as a matter of law. 
A summaiy judgment, interlocutory in character, may be rendered on the issue of 
liability alone although there is a genuine issue as to the amount of damages. 
Summary judgment, when appropriate, may be rendered against the moving party. 

(d) Case Not Fully Adjudicated on Motion. If on motion under this rule 
judgment is not rendered upon the whole case or for all the relief asked and a trial 
is necessary, the court at the hearing of the motion, by examining the pleadings and 
the evidence before it and by interrogating counsel, shall if practicable ascertain 
what material facts exist without substantial controversy and what material facts 
arc actually and in good faith controverted. It shall thereupon make an order 
specifying the facts that appear witiioiit substantial controversy, including the 
extent to which llic anuDunt of damages or other relief is not in controversy, and 
directing such hirtlier proceedings in the action as arc just. Upon the trial of tlic 
action the facts so specified shall be deemed established, and tlie trial shall be 
conducted accordingly. In the event that a moving party''s motion for summary 
judgment is denied in whole or in part, facts admitted by the parties solely for the 


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purpose of the summary judgment motion shall have no preclusive effect at trial 
upon any third party who did not participate in the summary judgment proceeding. 

(e) Form of Affidavits; Further Testimony; Defense Required. Supporting 
and opposing affidavits shall be made on personal knowledge, shall set forth such 
facts as would be admissible in evidence, and shall show' affirmatively that the 
affiant is competent to testify to the matters stated therein. Sworn or certified 
copies of all papers or parts thereof referred to in an affidavit shall be attached 
thereto or serv'ed thcrcwitli. The court may permit affidavits to be supplemented or 
opposed by depositions, answers to interrogatories, or fiirther affidavits. When a 
motion for summary judgment is made and supported as provided in this rule, an 
adverse party may not rest upon the mere allegations or denials of that party’s 
pleading, but must respond by affidavits or as otherwise provided in this rule, 
setting fortli specific facts showing that there is a genuine issue for trial. If the 
adverse paily does not so respond, summaiy' judgment, if appropriate, shall be 
entered against the adverse party. 

(f) When Affidavits Are Unavailable. Should it appear from the affidavits of 
a party opposing the motion that the party cannot for reasons stated present by 
affidavit facts essential to justify the party ’s opposition, the court may refuse the 
application for judgment or may order a continuance to permit affidavits to be 
obtained or depositions to be taken or discovery to be had or may make such other 
order as is just. 

(g) Affidavits Made in Bad Faith. Should it appear to the satisfaction of the 
court at any time that any of the affidavits presented pursuant to this rule arc 
presented in bad faith or solely for the purpose of delay, the court shall forthwith 
order the party employing them to pay to the other party the amount of the 
reasonable expenses which the filing of the affidavits caused the other party to 
incur, including reasonable attorney fees, and any offending party or attorney may 
be adjudged guilty of contempt. 

(h) Statements of Material Fact. 

In addition to the material required to be filed by Rule 7, a motion for 
summary judgment and opposition thereto shall be supported by statements of 
material facts as addressed in paragraphs (1), (2), (3), Sc (4) of this rule. 

(1) Supporting Statement of Material Facts. A motion for summary' 
judgment shall be supported by a separate, short, and concise statement of material 


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facts, set forth in numbered paragraphs, as to which the moving party contends 
there is no genuine issue of material fact to be tried. Each fact asserted in the 
statement shall be set forth in a separately numbered paragraph and shall be 
supported by a record citation as required by paragraph (4) of this rule. 

(2) Opposing Statement. A party opposing a motion for summary' judgment 
shall submit with its opposition a separate, short, and concise statement. Ihe 
opposing statement shall admit, deny or qualify the facts by reference to each 
numbered paragraph of the moving party’s statement of material facts and unless a 
fact is admitted, shall support each denial or qualification by a record citation as 
required by this rule. Each such statement shall begin with the designation 
“Admitted,” “Denied,” or “Qualified” (and, in the ease of an admission, shall end 
with such designation). In addibon to any denials or qualifications, the party 
opposing summary judgment may note any objections to factual assertions made 
by the moving party as set fortli in paragraph (i). The opposing statement may 
contain in a separately titled section any additional facts which Ihe party opposing 
summary judgment contends raise a di.sputed issue for trial, set forth in separate 
numbered paragraphs and supported by a record citation as required by paragraph 
(4) of this rule. 

(3) Reply Statement of Material Facts. A party replying to Uie opposition to 
a motion for summary judgmeut shall submit wdth its reply a separate, short, and 
concise response limited to the additional facts submitted by the opposing party 
and any objections to denials or qualifications as set forth in paragraph (i), Tlie 
reply statement shall admit, deny or qualify such additional facts by reference to 
the numbered paragraphs of the opposing party’s statement of material facts and 
unless a fact is admitted, shall .support each denial or qualification by a record 
citation as required by paragraph (4) of this rule. Each reply statement shall begin 
with the designation “Admitted,” “Denied,” or “Qualified” (and, in the case of an 
admission, shall end with .such designation). 

(4) Statement of Facts Deemed Admitted Unless Properly Controverted; 
Specific Record of Citations Required. Facts contained in a supporting or 
opposing statement of material facts, if supported by record citation.s as required by 
this rule, shall be deemed admitted unles.s properly controverted. An assertion of 
fact set forth in a statement of material facts shall be followed by a citation to the 
specific page or paragraph of identified record material supporting Ihe assertion. 
The court may disregard any statement of fact not supported by a specific citation 
to record material properly considered on summary judgment. The court shall 


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have no independent duly to search or consider any part of the record not 
specifically referenced in the parties’ separate statement of facts. 

(i) Motion.s to Strike Not Perraitlcd. 

(1) Motions to strike factual assertions, denials, or qualifications contained 
in any statement of material facts filed pursuant to this rule are not permitted. If a 
party contends that the court should not consider a factual assertion, denial, or 
quaKfication, the party may set forth an objection in either its opposing statement 
or in its reply statement and shall include a brief statement of the reason(s) for the 
objection and any supporting authority or record citations. 

(2) A party moving for summary judgment may respond in its reply 
statement to any objections made by the parly opposing summary' judgment. If 
the moving party objects in its reply statement to any factual assertion, denial, or 
quahfication made by the opposing party, the parly opposing summary judgment 
may file a response within 7 days of the fihng of the reply statement. Such a 
response shall be strictly hmited to a brief statement of the reason(s) why die 
factual assertion should be considered and any supporting authority or record 
citations. 


0 Foreclosure Actions. No summary judgment shall be entered in a 
foreclosure action filed pursuant to Title 14, Chapter 713 of die Maine .Revised 
Statutes except after review by the court and determination that (i) the service and 
notice requirements of 14 M.R.S. § 6111 and these rules have been strictly 
performed; (ii) the plaintiff has properly certified proof of ownership of the 
mortgage note and produced evidence of the mortgage note, the mortgage, and all 
assignments and endorsements of the mortgage note and the mortgage; and (iii) 
mediation, when required, has been completed or has been waived or the 
defendant, after proper service and notice, has failed to appear or respond and has 
been defaulted or is subject to default. In actions in which mediation is mandatory, 
has not been waived, and the defendant has appeared, the defendant’s opposition 
pursuant to Rule 56(c) to a motion for summary judgment shall not be due any 
sooner than ten (10) days following the filing of lire mediator’s report. 


Advisory Mole 
August 2009 



319 


Exhibit 2 


28 



320 


Loan No. 0554937904 
STATE OF MAINE 
CUMBERLAND ,SS 


MAINE DISTRICT COURT 
DISTRICT NINE 

DIVISION OF NORTHERN CL’MBERLAND 

CIVIL ACnON 

DOCKET NO. BRI-RE-09-65 


FEDERAL NATIONAL MORTGAGE 
ASSOCIATION 

Plaintiff 

V. 

NICOLLEM, BRADBURY 
Defendant 
and 

GMAC MORTGAGE, LLC d/b/a 
DITECH, LLC.COM and 
BANK OF AMERICA, NA 

Parties in Interest 


) 

) 

) 

) 

) 

) AFFIDAVIT IN SUPPORT 

) OF PLAINTIFF S MOTION 

) FOR SUMMARY JUDGMUiNT 

) 

) 

) 

) 

) 

) 

) 

) 

) 


COMMONWEALTH OF PENNSLVANIA 
Montgomery, ss, 

, Jeffrey Stephan 

limited Signing Officer , depose and say as follows; 

1 . My name is StephqUm^ a Limited Signing Officer with GMAC Morteace 

Limited Signing Officer 

LLC ( GMAC ), a limited liability company organized and existing under the laws of the State of 


Delaware with a principal place of business in Fort Washington, Peimsylvania. GMAC is the 
seiwicing agent for the moilgage to Federal National Mortgage Association ( FNMA ). 1 have 


imdcr my cii.stody and control the records relating to the mortgage traiLsaclion referenced below. 


29 



321 


My knowledge as to Tiie facts set forth in this Affidavit is derived h’om ny personal knowledge of 
these records. These records were made at or near the time of the event, transaction, or from 
information transmitted by, a person widi personal knowledge of the events recorded therein. 
These records are kept in the ordinary' course of business of GMAC as FNMA s servicer and all 
previous holders and servicers of tlic Note and Mortgage referenced below and it is the regular 
practice of GMAC as ser\dcmg agent to FNMA and all previous holders and servicers of the 
Note and Mortgage referenced below to make such records. 

2. GMAC maintained the account of the Note and Mortgage referenced below. By 
virtue of GMAC s maintenance of the account, GMAC is responsible for accepting pay7ncnts, 
notifying debtors of the account status, and calling defaults. 

3. Defendant executed and delivered to GMAC Mortgage Corporation a Note, dated 
July 25, 2003 in the original principal amount of $75,000.00, a true and correct copy of which is 
attached hereto as Exhibit A. 

4. In order to secure said Note. Defendant executed aud delivered to GMAC Mortgage 
Corporation in its favor a Mortgage, dated July 25, 2003, and recorded in the Oxford County 
Registry of Deeds in Book 458, Page 84, a true and correct copy of which is attached hereto as 
.Exhibit B. 

5. Tlie Note was subsequently assigned to FNMA by the eudorsement as set forth on 
the Note Endorsement attached to the Note. 

6. Mortgage Electronic Registration Systems, Inc., acting solely as nominee for 
GMAC Moitgage Coiporation and its successors and assigns, as the bcncliciai-y of said Mortgage 
subsequently assigned .said Mortgage to FNMA by As.signmcnt pf Mortgage, dated February 13, 


30 



322 


2009, and recorded in said Registry of Deeds in Book 557, Page 40, a true and con'ect copy of 
which is attached hereto as Exhibit C. 

7. Defendant is presently in defauh on said Note in that she has failed to make tlie 
monthly payments and therefore has breached the condition of die aforesaid Mortgage. Payments 
of principal and interest arc due for October 1, 2008 to and including July 20, 2009. 

8. On or about November 7, 2008, GMAC sent Defendant a notice of the default, a true 
and correct copy of which is attached hereto as Exhibit D. Defendant failed to reinstate the 
mojtgagc within the time period as set forth in said notice. 

9. There is prcscaiUy due and owing on said Note and Mortgage the principal amount 
of $74,343.47, interest thereon to July 20, 2009, in the amount of $3,867.06 with additional interest 
accruing on said principal balance at the note rate of 5.875%, late fees of .$512.28, escrow 
advances of $1,453.23, property inspection fees of $101.25 and attorneys fees and costs related to 
the collection of sums due under the Note, paid by FNMA, less a suspense balance of $142.20, 

1 0. Defendant is a resident of Denmark, in the County of Oxford and State of Maine. 
Defendant is not in the military service of the United Stales as defined in Article I of the 
"Soldiers’ and Sailors' Relief Act of 1940," as amended; said Defendant i.s not an infant or 
incompetent person; and venue is proper in this Court by virtue of the fact that the premises wliich 
are described in said Mortgage in this proceeding arc located in Denmark in ±e County of Oxford 



31 



323 


Jeffrey Stepha-i 

Personally appeared the above-named, Xinutcd Signing k now to me to be 

the person described in the foregoing Affidavit, and being duly sworn by me, made oath that tlie 



32 



324 


Exhibit 3 


33 



325 


SUMMARY OF KEY PORTIONS OF TESTIMONY OF JEFFERY STEPHAN AT HIS 
DEPOSTION TAKEN ON JUNE 7, 2010 


P.33, line 24 

Q. Do you have any knowledge of how summary judgment affidavits are used 
injudicial foreclosure case? 

A. No. 

Q, Are you aware that they are given to a judge? 

A. Yes. 

Q. And do you understand that a judge relics upon them? 

A. Yes 
P, 34,linel6 

Q. Has the manner in which you perform your duties as team lead for the 
document execution team changed in any way over the period from August 5, 2009 
to the present date? 

A. No. 

P. 54 

Q. When you sign a summary judgment affidavit, do you check to see if all of 
the exhibits are attached to it? 

A No. 

Q. When you sign a summaiy judgment affidavit, do you inspect any of the 
exhibits attached to it. 

A. No. 

Q. Does anybody in your department check to see if all of the exhibits are 
attached to it? 


A. No. 

Q. When you sign a summary judgment affidavit, do you inspect any exhibits 
attached to it? 

A. No. 


EXHIBIT 1 


1 


34 



326 


P. 5S,line56 

Q. My question to you is where does a summary judgment affidavit go after 
you sign it? 

A, After I sign it, it is handed back to my staff. My staff hands it to a notary 
for notarization. They send it back to the attorney network requesting any type of 
affidavit. 

Q. So yon do not appear before the notary; is that correct 

A. I do not 
P. 58, line 13 

Q. Your department does not do an independent check of the accuracy of the 
information on summary judgment affidavits coming to you; isn't that correct? 

A. I review, quickly, the figures. Other than that, that's about it, 

P. 61, line 14 

Q. And you just testified that you look at principal, interest, late charges and 
escrow, is that correct? 

A, That is correct. 

Q. Is there anything else that you look at In your computer system when your 
signing a summary judgment affidavit? 

A. The only thing 1 review other than that Is who the borrower is. 

Q. When you receive a summary judgment affidavit to sign, do you read every 
paragraph of it? 

A. No. 

Q. What do you read? 

A. 1 look at the figures. 

Q. That's all that you look at when you sign a summary judgment affidavit? 

A. Yes, to ensure that the figures are accurate. 


2 



327 


P, 62, line 11 

Q. Is it fair to say that when you sign a summary judgment affidavit, you do 
not know what information it contains other than the figures that are set forth 
within it? 

A. Other than the borrower's name and if I have signing authority for that 
entity. That is correct. 

P. 67, line 21 

Q. So other than the due date and the balances due, is it correct that you do 
not know whether any other part of the affidavit that you sign is true. 

A. That could be correct. 

Q. Is it correct? 

A. That is correct. 


3 



328 


Exhibit 4 


37 



329 



1 

MAINE DISTRICT COURT, 

DISTRICT NINE 

DIVISIONOFNORTHERNCUMBERLAND 

FEDERAL NATIONAL 


MORTGAGE ASSOCIATION 

DOCKET NO , 

Plaintiff 

BRI-RE-09-65 

V . 


NICOLE M. BRADBURY 


Defendant 


and 


GMAC MORTGAGE, LLC 


d / b / a DITECH, LLC.COM 


and BANK OF AMERICA, NA 


Parties in Interest 


June 7, 2010 

Oral deposition of JEFFREY D. 

STEPHAN, taken pursuant 

to notice, was 

held at the law offices 

of LUNDY FLITTER 

BELDECOS S. BERGER, P.C., 

450 N. Narberth 

Avenue, Narberth, Pennsylvania 19072, 

commencing at lOilO a.m. 

.ontheabove 

date, beforeSusanB. Berkowitz, a 

Registered Professional 

Reporterand 

Notary Public in the Commonwealth of 

Pennsylvania. 





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2 

1 

4 

S1BPHAN 

2 

MR. COX; Ml. Fleischer, we 

3 

understand that Julia Pituev 

4 

represents the plaintiff in this 

5 

case. Who do vou represent today ? 

6 

MR. FLEISCHER: I believe 

7 

M.S. Pilnev boili represents Fannie 

1 8 

Mae ajid GMAC, and I am here on 

i 

GMAC's behalf. 

tio 

MR. COX; GMAC is neither a 

1“ 

plaintiff nor defendant in this 

1 12 

case, so wc may have some issues 

1 13 

around that, but we'll cross that 

14 

brid^ when we get to it. 

15 

— 

16 

EXAMINATION 

17 


18 

BY MR. COX; 

19 

Q. Mr. Stqihiin, for the reaird. 

20 

would YOU state vour full name, please? 

21 

A. Jcllrcy Stephan . 

22 

Q. How- old are you? 

23 

A. Iain4i. inJunc. 

24 

Q. Voulive in Sellersville, 

25 

Pennsylvania? 

1 

5 

STEPHAN 

2 

A. That is correct, 

3 

Q- Have you had your deposition 

4 

tAk<ai previously? 

5 

A. In other cases, yes. 

6 

Q. How many other cases? 

7 

A. This will be my third time. 

8 

Q. VVhat other cases were vou 

9 

deposed in, to your recollection? 

10 

A. In what kind of cases? 

11 

Q. Well, can YOU remember the 

12 

names ol the cases? 

13 

A. No, i don't. 

14 

Q. W'hcn is the last time that 

15 

you've had your deposition taken? 

16 

A. t w'ould approximciic two, 

17 

three months ago. 

18 

Q. Was that in Florida? 

19 

A- No. TTial was in New Jersey. 

20 

Q- That would helve been in 

21 

2010? 

22 

A. Yes. 

23 

Q- Then you were deposed in 

24 

Rorida in December of 2009 

25 

A. That is correct. 


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1 

6 

STEPHAN 

1 

8 

STEPHAN 

2 

Q. When was Ihe other 

2 

to? 

3 

deposition, the third deposition? 

3 

A. No. 

4 

A. This one today is the third. 

4 

MR. FLEISCHER; Ixthini 

5 

Q- Have you testified in court 

5 

finish the question, and then 

6 

as a witness before? 

6 

respond, because it makes it 

7 

A, No. 

7 

cleaner for the transcript. 

8 

Q. Did you review any documents 

8 

THE WITNESS: Thank you. 

9 

to prepare for tliis deposition? 

9 

BY MR, COX: 

10 

A. Yes. 

10 

Q. What is your educational 

1 

0- What documents did you 

11 

background? 

12 

leview? 

12 

A. I have a four- year degree at 

13 

A. I looked at the dejxisilion 

13 

Penn State University in liberal arts. 

14 

that was sent to me. And I went over the 

14 

Q. When did you go to work for 

15 

Complaint wid: Brian. 

15 

GMAC> 

16 

THEWITNRSS: When was that, 

16 

A. I began work at GMAC 

17 

Thursday, Wednesday? 

17 

September 30lh of '04. 

18 

MR, FLEISCHER: You're 

18 

Q. What was your work history, 

19 

directed not to say an)'ihing with 

19 

in a summary form, before you went t o 

20 

regard to what we specie about. 

20 

w'ork for GMAC? 

21 

but, yes, you am answer to what 

21 

A. I have done collections and 

22 

you looked at. 

22 

nwrtgage foreclosures for otlicr 

23 

THE WITNESS: Yes. 

23 

companies. 

24 

MS. PUNE Y; I'm Sony to 

24 

Q. Who have you done inoitgage 

25 

interrupt. I’mjusi having a 

25 

foradosurc work for? 

1 

7 

STEPHAN 

1 

9 

STEPHAN 

2 

little difficulty hearing you. Is 

2 

A. ContiMorigagc, Fairbanks 

3 

there any way to push 1 he phone a 

3 

Capital. GMAC, 

4 

Hub closer to Mr. Stephan? 


0- The fnsi one. I'm not sure 

5 

MR. FLEISCHER; Okay. And, 

5 

about. Is chat Conti, C-O-N-T-E (sic)? 

6 

Julia, let me know during the 

6 

A. C-O-N-T-T, 

7 

course if (here's still a problem. 

7 

Q. What period of lime did you 

8 

MS, PITNEY: You were doing 

8 

work for ContlMortgage? 

9 

fine, and then it got a little 

9 

A. I began therein '92. I 

10 

fuzzy. 

10 

believe I left there in '98. 

11 

THE WITNESS; I’ll talk 

11 

Q. What years, approximately, 

12 

louder. 

12 

did you wxrrk for Fairbanks Capital? 

13 

MS. PITNEY; Thank you. 

13 

A. '98 to '04. 

14 

BY MR. COX: 

14 

Q. You work in the GMAC 

15 

Q. What deposition did you lex* 

15 

Mortgage office in Foil Wa.shinglon. 

16 

at? 

16 

Pennsylvania; is that correct? 

17 

A. The deposition for this 

17 

A. That Ls coireci. 

18 

case. 

18 

Q. Approximately, how many 

19 

0- the Deposition Notice? 

19 

people work in that office? 

20 

A. Right, the Dcpo.sition 

20 

A. I can't estimate the number 

21 

Notice. 

21 

of people. 1 can say my depaitmenl. 

22 

Q. It was not another • 

22 

approximately 50 to 60 people. 

23 

deposition transcript — j 

23 

Q. %4iat's the name of your 

24 

A, No. ; 

24 

department? 

25 

Q. - that you were referring j 

25 

A- Horcciosiires, 


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10 


12 

1 

STEPR'\N 

1 

STEPHAN 

2 

Q . When you began working for 

2 

team lead Rk our bidding team, wliich 

3 

GMAC Mortgage in 2004, what position did 

3 

would be a team of individuals who 

4 

you begin vv<.)rking in? 

4 

calculate tlie bids for sales. 

5 

A. I was a foteckjsurc 

5 

Q. Calculate the bids for sales 

6 

specialist. 

6 

ofriKrrtgage — 

7 

Q . W'hat kinds of dirties did 

7 

A. Fororlosure sales. 

8 

that involve? 

8 

MR. FLHSCHER: Again, let 

9 

A. That involved the dav-to-day 

9 

him finush the question. 

10 

handling and servicing of a portfolio of 

10 

BY MR COX: 

11 

loans that fell into a foreclosure 

11 

Q. Just so 1 can understand it, 

12 

catcgoiy. 

12 

your role in that position was to help 

13 

Q. What kinds of duties did vou 

13 

GMAC calculate what it was going to hid 

14 

carrv' out with respect to those matters? 

14 

at any given foreclosure sale? 

15 

MS.Prn^Y: Object to form. 

15 

A. That would be correct. 

16 

M R . COX; You have to 

16 

Q. Tlic foreclosure 

17 

answer. 

17 

department - is tliat what it's called? 

18 

MS. PITNEY: You can answ'er 

18 

A. Yes. 

19 

the question. 

19 

Q. That has units within it? 

20 

THE WITNESS: Tlie everyday 

20 

A. Yes. 

21 

servicing of the file, frem 

21 

Q. And when you were doing the 

22 

contacting the attorney, supplying 

22 

bidding work, what unit were you a part 

23 

ar attorney who's handling a case 

23 

of at that time? 

24 

within ray portfolio with any 

24 

A. The bid team. 

25 

infomialion they may need, a copy 

25 

Q. How long did you serve on 


11 


13 

1 

STEPHAN 

1 

STEPHAN 

2 

of documents that mav be needed 

2 

the bid team? 

3 

through a fax form or e-mail forin, • 

3 

A. I'm going to estimate six 

4 

tlic calculation of figures for 

4 

months to a yeat , at the most, 

5 

judgments , reporting sale results 

5 

Q. Docs it sound rouglily 

6 

at that time, and prop«’ly 

6 

coiTect that sometime in 2008 , you 

7 

atnveying properties to the proper 

7 

a.ssumed a new position? 

8 

depaitments for post sale action. 

8 

A. Yes. 

9 

BY MR. COX; 

9 

Q. What was the next position 

10 

Q. How long did you hold the 

10 

that vou held after working on the bid 

1 1 

position of foreclosure specialist? 

11 

team? 

12 

A. With GMAC. three years. 

12 

A. My present pos ition, which 

13 

Q , So you would have assumed a 

13 

is the team lead of the docuinent 

14 

new position sometime in 2007? 

14 

execution team. 

15 

A. Yes. 

15 

Q . Is lliCTe also a seivice 

16 

Q. What position did you assume 

16 

transfer unit? 

17 

iji 2007? 

17 

A. Yes. there is. 

18 

A, I became a team le-ad within 

18 

Q. .Arc you the team lead of 

19 

the foreclosure dq^arlmcirt. 

19 

that as W'ell? 

20 

Q- Wliat duties did vou assiuiie 

20 

A. Yes, Tam. 'Ibat falls into 

21 

as the team lead in the foreclosure 

21 

the document execution team. 

22 

department? 

22 

Q. So I talk, your language, 

23 

A. .^tdiattime^GMykC 

23 

there's a foreclosia-c department? 

24 

segregaieil our department into t(^inis, and 

24 

A. Yes. 

25 

1 was put into place as the supawisor or 

25 

Q. .And the subdivisions within 


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14 


16 

1 

STEPHAN 

1 

S'l'EPHAN 

2 

lhai, do you call them teams or units? 

2 

A. 14, 

3 

A. Teams. 

3 

Q. Including vourself? 

4 

Q. So there's a foreclosure 

4 

A. No; including me. 15, 

5 

department, and then within it are a 

5 

Q. What training have you 

6 

group of reams that do diffea'Mit 

6 

received from GMAC to function in vour 

7 

functions; is that correct? 

7 

capacity as die team lead for die 

8 

A. That is correct. 

8 

document execution team? 

9 

Q. What dtxs the document 

9 

MS. PITNEY: Object to form. 

10 

execution team do? 

10 

BY MR, COX: 

11 

MR, FT.ETSCHER; Objection as 

11 

Q. Lei me restate the question. 

12 

to form. 

12 

Have you received any training from GM\C 

13 

THE WITNESS: Dm you 

13 

to use in conjuiurtion with your 

14 

rephrase that? 

14 

performance as the team lead for the 

15 

BY Mi. COX: 

15 

d(K;unienl execution team? 

16 

Q. What are the fuix;tions of 

16 

A. Yes. 

17 

lire document exeaition team? 

17 

Q. Wliat ti'aining have you 

18 

A. Tlie functions of my dtxnjineni 

18 

received? 

19 

execution team is, 1 have staff that 

19 

A. I received .sidc-by-sidc 

20 

prints documents, fiom our coinjmtcr 

20 

trmniiig frtnn another team lead to 

21 

system, that are submitted from our 

21 

iastruci me on how to rev iew the 

22 

attorney network. 1 have staff, also, on 

22 

documents when diey are received from rav 

23 

tliat team who prcparc.s the documents 

23 

staff. 

24 

which have already leceived rigures from 

24 

Q. Who was that jxirson? 

25 

our allorncys. So tbac are completed 

25 

A. That person, at tlic time,! 


15 


17 

1 

STEPHAN 

1 

STEPHAN 

2 

dxumcnt,s. They fill in the blanks, llrey 

2 

believe was a gcmlemaii by tlie name of 

3 

stamp names. I’licy ensure that all of the 

3 

Kenneth ligwuadii, U^j-W-U- A-D-U, He .is no 

4 

notary lines are completed properly once 

4 

longer with GMAC. 

5 

it's retuTTicd from Uic notary. And that 

5 

Q. How long did that training 

6 

staff also is in charge of making sure 

6 

last? 

7 

they Federal Express the documctu back to 

7 

A. Three daj'S, 

8 

The designated attorney within our 

8 

Q. Were tticrc any written or 

9 

network, 

9 

primed irainiiig materials or manuals 

10 

Q. What docs tlic .service 

10 

used as a paiT of that training? 

11 

transfer team do? 

11 

A, No. 

12 

A. The .service transfer teani 

12 

Q. Again, just so I inidcrstaiid 

13 

receives a list of loans from our 

13 

wiial your tcstiiuonv wiis, that Lniiiung 

14 

transfer management team, which is 

14 

involved yciur learning how to revitw the 

15 

located in Iowa. Tlie service transfer 

15 

dix:umetiLs Ifial were being processed 

16 

team within foreclosure only handles 

16 

through your hands; is that ixirreut? 

17 

loans that fall into a bankniptcy or 

17 

A. Thai's aurect. 

18 

forcclnsure category. 'Hiey prqrare files 

18 

Q. What were you ci aincd to do 

19 

or (.'Ds, and transfer rliem to the new 

19 

willi resjiect to tliasc docuiiicnls liy liiat 

20 

semccr. ,So tliey're loans that arc 

20 

geiitlenKin? 

21 

eiltier acquii'cd, or thev're loans that 

21 

A. Rasically, how to review the 

22 

are being transferred to a new servicer 

22 

system, which 1 already baiically knew 

23 

for ser\'ice. 

23 

from prejiaritig documents in my prior 

24 

Q . How many employees ttre on 

24 

position bdtire becoming a team lead. So 

25 

the document execution team? 

25 

it was more oiTcss a rehash, let's say. 


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18 


20 

1 

STEPHAN 

1 

STEPHAN 

2 

or retraining, to confirm that I w’as 

2 

A. No. 

3 

looking at things correctly in the 

3 

Q. In ytiuf capacity as team 

4 

system. 

4 

lead for the document execution team, do 

5 

Q. Wlicn you refer lo a system. 

5 

you have any responsibility for data 

6 

you're referring to a unnputcr sy'stem? 

6 

entry into the uHnputer system regarding 

7 

A. Yes. 

7 

paymtaits received by GM/kC? 

8 

Q- Other than what you might 

8 

A. No. 

9 

call it when you're not happy, does that 

9 

0- In yt)ur ca|.iacity as the team 

10 

system have a name? 

10 

lead !<«■ die dtKumenl execution team, do 

11 

A. Yes. That system is called 

11 

you have any role in the foreclosure 

12 

Fiscrv,F-I-S-E-R-V. 

12 

pwocess at GMAC. other than the signing 

13 

Q. Have you received anv 

13 

of documents? 

14 

training on how to use that system? 

14 

MR. FIHISCHER: Objectior as 

15 

A. Yes, when I was hired. 

15 

to tlie fomitd the question. 

16 

0- Are tlicre ajiy manuals or 

16 

THEWITNF.SS: Cun you 

17 

training materials associated with your 

17 

reirhrase? 

18 

training on that system? 

18 

BY MR. COX; 

19 

A. Yes, there is. 

19 

Q. In your capacity as the team 

20 

Q. Do you have those manuals iu 

20 

lead for the document execution team, do 

21 

your possession? 

21 

you liave any role in the foreclosure 

22 

A. Preseiiily, ix). 

22 

process. (Hher than the signing of 

23 

Q. rio they exist in vour ollice 

23 

documents? 

24 

at GMAC? 

24 

.A. No. 

25 

A, I honestly don't know. 

25 

0- Tm going to hand you what 


19 


21 

1 

STEPHAN 

1 

STEPHAN 

2 

Q. In your role as teacn lead 

2 

wc have marked as Deposition Exhibit 

3 

for the document execution team, do you 

3 

Number 1 , which is youj- alTidavii in this 

4 

have any duties with respect to the 


case, dated August 5, 21)09. 

5 

receipt, application, or counting hir 

5 

MS. PITNEY; Excuse me, Tom. 

6 

loan payments? 

6 

This is Julia. Am I to presume 

7 

A. .No. 

7 

that this is the only exliibil 

8 

MS. PITNEY: Object to the 

8 

you're going to be introducing? 

9 

form of the question. 

9 

Because I haven't received any 

10 

BYMR.COX: 

10 

exhibits that you plan to produce 

11 

Q. Wliai dcpaitmcnt has that 

11 

at this dcpasitioij todav, 

12 

responsibility? 

12 

MR. COX: 1 liad no idea you 

13 

A, To ray understanding, that 

13 

vwre going to be participating 

14 

would be customer service. And within 

14 

today, Julia. 

15 

customer service, T believe ihCTe is a 

15 

MS. PITNEY: Well.! 

16 

cash unit, 

16 

reprcsenlthe plaintiff. It 

17 

Q. Have you ever w'orked iu tliat 

17 

shouldn't come as any suiprise. 

18 

ciish unit? 

18 

MR. CXDX: We're not going to 

] 9 

A. No, 

19 

have a debate on the lecoi'd. The 

20 

Q. Have you ever worked in that 

20 

exliibils aiohorc. You're welcome 

21 

customer service depaitment? 

21 

to come see tlicm. had no idea 

22 

A. No. 

22 

that you were going to participate 

23 

Q. Have vou ever liad any 

23 

in this fasliion. 

24 

training in how thiit department and unit 

24 

MS- PITNEY: You had no 

25 

w'ork? 

25 

idea? 


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24 

1 

STEPHAN 

1 

STEPHAN 

2 

MR, COX: Imnol g<Hng to 

2 

I understand tliere's not a large 

3 

have tlii.s exchange ou ihe reaad 

3 

number of documents. I propose 

4 

witliyou. If you w-'anl to go off 

4 

lliat wc have Attorney Fleischer 

5 

ihc record for a minute, IT] be 

5 

fax them to me, or c-mail, in 

6 

happy to do it. 

6 

bulk, or we're going to have to 

7 

MS. PITNEY: No, wc'rc going 

7 

slop. I would object. And each 

8 

to Slay right on tlx; record, Tom. 

8 

time Tni going U) slop and have 

9 

MR. COX: That'.sfme. 

9 

each document sent to me. 

10 

MS. PITNEY: Isiiyoui 

10 

MR, COX: Your objection IS 

11 

intent to introduce these exliibits 

11 

noted. 

12 

that have not been pixxluced to the 

12 

MR. HEJSCHER; Wliy don't we 

13 

opposing piUly? 

13 

at least ju.st deal with the one 

14 

MR. COX: I'm not going to 

14 

document that's in front of us at 

15 

respond to that. I ■will cniaiaiii 

15 

this point, which is the 

16 

objections that you are going to 

16 

affidavit, and then we'll address 

17 

make. But I'm not going to 

17 

each one as they come up. 

18 

respond to your questions on the 

18 

MS. PITNEY: Fail' enough. 

19 

record. 

19 

BY MR. COX; 

20 

MS. PITNEY: I'm going lo 

20 

Q. Mr. Stephan, vou've 

21 

object to each and every exhibit. 

21 

testified thiit in addition to yourself. 

22 

MR, COX; TTial's your right 

22 

thaeare 14 other employees in your 

23 

to do that. 

23 

document execution team. 

24 

BY MR. COX: 

24 

A. That is correct. 

25 

Q. I've handed you Deposition 

25 

0- You have a title of limited 


23 


25 

1 

STEI^HAN 

L 

STEPHAN 

2 

Exhibit Number 1 , Mr. .Stephan. Is that a 

2 

signing officer; is lhal correct? 

3 

d(x;ument signed by you? 

3 

A. TliniiscofTcct. 

4 

A. Ycfi, that is my signature. 

4 

Q. How long have you been a 

5 

Q. And that's dated August 5, 

5 

limited signing officer for GMAC 

6 

2009? 

6 

Moiigagc? 

7 

A. Thalisairrcct. 

7 

A. Fm going to estimate, two 

8 

Q. Do you have any memory of 

8 

yern-s. 

9 

signing tliat document? 

9 

Q. Ai'e there any other limited 

10 

A. No, I do not, 

10 

.signing otTiccrs among the 14 people on 

11 

MS, PITNEY: I'd like to 

11 

y-our team? 

12 

take a brief break and speak with 

12 

A. No, not amongst niv 1 4 

13 

Attorney Fleiselier separately. 

13 

people. 

14 

Tliere's no question pending. 

14 

Q. Exliibil-l. on the bottom of 

15 

(Whereupon, a sboit recess 

15 

the first page, saw: 1 have under my 

16 

was taken ,} 

16 

custody and control the records relating 

17 

MR, COX; i gath^- you have 

17 

to the iiKKtgagc Iransaciion referenced 

18 

sutnelliing you wint lo say on the 

18 

below-. 

19 

record, Julia? 

19 

What lecoixis docs GMAC 

20 

MS, PITNEY: Yes. 1 object 

20 

maintain with lesfiect lo mortgage 

21 

to not being provided cojrics of 

21 

transactions? 

22 

the document.s that you intend to 

22 

MS. PITNEY: Object to the 

23 

introduce in tliis deposition. And 

23 

tarn. 

24 

in an effon to make thincs more 

24 

THRWiTNESS; Please 

25 

efiieienl, my pioptrsal is that — 

25 

rephrase. 


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28 

1 

STEPHAN 

1 

STEPHAN 

2 

BY MR. COX: 

2 

A. That would be correct . 

3 

Q. What records does GMAC 

3 

Q. And you have no n)le in the 

4 

maintain with respect to mortgage loans? 

4 

entry of any other data into that system; 

5 

A. We keep our records for the 

5 

isn't that conect? 

6 

foreclosure department and the rest of 

6 

A. That is correct. 

7 

the company on our Fi.serv system for 

7 

Q. What depaitmeiit maintains 

8 

availability througtiout our cojii^any. 

8 

that system? 

9 

Q . Do paper records exist 

9 

MR.FI.EISCHl:iR: Objection as 

10 

anywhere within GM/\C Mortgage? 

10 

to form. 

11 

A- Yes , tltey do. 

11 

BY MIC COX: 

12 

Q. Where do they exist? 

12 

Q. Do you know what department 

13 

A. I believe they aie housed 

13 

maintains that system? 

14 

either in our Iowa office or in 

14 

A. The system is used by the 

15 

Minnesota, or with any of our custodians 

15 

entire ainipany. 

16 

involved within (he company. 

16 

Q. Do you know what department 

17 

Q. Do you have any 

17 

maintains the security for that system? 

18 

responsibilities for making entries in 

18 

A. The IT department. 

19 

the Fiscrv system? 

19 

Q. Where is that located? 

20 

A, Other than just usual notes. 

20 

A. Throughout the entire 

21 

no. 

21 

country. 

22 

Q . WTaat kind ol usual notes do 

22 

Q. Do you know what department 

23 

you enter? 

23 

makes entries into that system? 

24 

MS. PITNEY: Object. I'm 

24 

A. Niunerous departments. 

25 

objecting to the fonii of the 

25 

Q. Do you know what departments 

1 

27 

STEPHAN 

1 

29 

STEPHAN 

2 

question. And, furtlicnnore.l'm 

2 

have die ability to change entries in 

3 

objecting to the extent that 

3 

that system? 

4 

you're basically asking him an 

4 

A. NcAxxly lias die ability to 

5 

increriibly brottd-based question 

5 

cliange an entry in the system, as far as 

6 

here, Tom, If you want to ask him 

6 

a note would go. 

7 

about lhi.s case and any entries he 

7 

Q. Wliai do you mean by that? 

8 

made witli respect to this case, 

e 

A. Such as if a customer calls 

9 

then dial's fme. But your 

9 

in, you type in the system. Once you 

10 

question is pretty swe^ing there. 

10 

type it, it's entered. 

11 

BY MR. COX: 

11 

Q. Docs GMAC keep a paper 

12 

Q, Wliat is your asual basincss 

12 

record of loan payments made liy mortgage 

13 

practice ajid routine with respect to 

13 

custorrers? 

14 

making usual notes in tlieFisefV system? 

14 

A- I do not know. 

15 

A. It a customer were to call 

15 

Q. f think you said that die 

16 

in, I would make a note in our ain^uler 

16 

cash dqrartJTient receives payments - 

17 

.system. 

17 

customer payiivciils; is that con eel? 

18 

Q. Dt' customers call you in 

18 

A. To my knowledge, yes. 

19 

your capacity as team lead for the 

19 

Q- That's the departuieut that 

20 

document execution team? 

20 

you've said you have not wnked in; is 

21 

A. No, they do not. 

21 

that Correa ? 

22 

Q. So if that's tlx; only kind 

22 

A. 'Iliai is correa. 

23 

of notes that you would make in the 

23 

Q- So TOu don't have fii-sihand 

24 

system, is it I'aii' to say dial you don't 

24 

knowledge about how it operates; is that 

25 

make notes in that system? 

25 

correa? 


8 (Pages 26 to 29) 


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32 

1 

STEPHAN 

1 

STEPHAN 

2 

A. That is correct. 

2 

Q. That's the only other 

3 

MS. PITNEY: Object. 

3 

document execution team that you're aware 

4 

BY MR. COX: 

4 

of? 

5 

Q. Do you have any knowledge 

5 

.A. To my knowledge, yes. 

6 

about how the data relating to lho,se 

6 

Q. When you referred in one of 

7 

payments at e entered into the system? 

7 

your aaswers a tew mcments ago to 

8 

A. I do not have tltat 

S 

judgment affidavits, are yoLi referring to 

9 

kitowledge. 

9 

tlie type of affidavit in front of you. as 

10 

Q. Do you have any knowledge 

10 

Deposition Exhibit- 1? 

11 

about Iwow' GMAC eiisures the accuracy of 

11 

A. That is a similar tvpe of 

12 

the data entered into the system? 

12 

affidavit, ves. Tills states Affidavit in 

13 

A. No, Ido not. 

13 

Support, of the Plaintiffs Motion for 

14 

Q . Do you have any knowledge as 

14 

Summary Judgment. 

15 

to what measures GMAC takes to preserve 

15 

Q. Have vou received any 

16 

the integrity and security of tlie system? 

16 

traininc reeardina the summarv judenicnt 

17 

A. No.Idonot. 

17 

process injudicial foreclosure states? 

18 

MS. PITNEY: Object to the 

18 

A. No. 

19 

form of that question. 

19 

Q. Do you have any knowledge as 

20 

BY MR, COX: 

20 

10 what a summary judgment allidavit is 

21 

Q. In your capacity as team 

21 

used tor in die State of Maine? 

22 

lead for the document execution team, 

22 

MR, FLEISCHER: Objection as 

23 

what kinds of dtxunients do you sign? 

23 

to fomi. 

24 

A. The types of dociunents I 

24 

BY MR. COX: 

25 

.sign arc assignments of mortgage. 

25 

0- Would you please answer the 


31 


33 

1 

STEPHAN 

1 

SXe’HAN 

2 

numerous types of affidavits, deeds that 

2 

question? 

3 

need to be done jx)st sale, a substitution 

3 

A. To my knowledge, a borrower 

4 

ol trustees. And that covers it in a 

4 

would have filed a contested answer. And 

5 

genera] span. 

5 

this would lie our next step within the 

6 

Q. You said you .sign a variety 

6 

process, to ccaifirm die amount that is 

7 

of ai'fidavits. What kinds of affidavius 

7 

due to support the summary judgment, 

8 

do you .sign? 

8 

Q. Do y<xi understand how the 

9 

A. I sign judgment affidavits 

9 

affidavit Ls used, that is, Depexsition 

10 

for judicial foreclosure aaioiis. I will 

10 

Exhibit NuiHici 1? 

11 

sign an affidavit vchfving militar)- 

11 

MS. PITNEY: Objection. 

12 

duty. 1 sign aflidavits in reference to 

12 

Tom. you're gelling dangerously 

13 

-- if GMAC has cxliaustcd all options 

13 

close here to the jirivilegcd area. 

14 

through lost mitigation upon reviewing 

14 

I mean, tills affidavit, in itself, 

15 

notes in our FI.sca' system. That'.s a 

15 

was prepared in preparation for 

16 

general description of different types 

16 

litigation — in litigation; not 

17 

of affidavits. 

17 

cv'aiprepaiatioii for it, but 

18 

Q. Your dix-umciit execution team 

18 

during litigation. 

19 

provides dexutnents for fonxiosurcs in 

19 

MR. CiOX: I have not the 

20 

what states? 

20 

slightest intcicst in getting into 

21 

A. Thniughout the country'. 

21 

attomey/clL«il privilege. I'll 

22 

Q. Are ilicre other document 

22 

rephrase the question. 

23 

execution teams within the GMAC system? 

23 

BY MR. COX: 

24 

A. 1 believe our bankruptcy 

24 

Q. Do you have any knowledge of 

25 

unit also has a document execution team. 

25 

how summary judgment alfidavils ai e used 


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36 

1 

STEPHAN 

1 

STEPHAN 

2 

in iudicial foreclosure states? 

2 

tool, briween our attorneys. Thevload 

3 

A. No. 

3 

it into a process called signature 

4 

Q. .Are you aw,^ that they are 

4 

required. 

5 

given to a judge? 

5 

MS . PITNEY ; .Icff, I'm going 

6 

A, Yes. 

6 

to interrupt you right there. To 

7 

Q. And do you undersiaiKJ that 

7 

the extent that this answer or 

6 

the judge relies upon them? 

8 

anything else that you say has to 

9 

A. Yes, 

9 

do with your communication between 

10 

Q. At the Lime that you 

10 

you and your ailomcy - GMAC and 

11 

executed Deposition Exhibit-] on August 

11 

its aiiomey, ii'.s attorney/client 

12 

5, 2009, you v.'crc, at that time, in your 

12 

privilege. 

13 

position as team lead for the document 

13 

THE WITNESS: Sol won't 

14 

execution department? 

14 

aaswer. 

15 

A. Yes. 

15 

MR. COX: W^ell, let's go 

16 

Q. lias the manner in which you 

16 

hack and ask the question again. 

17 

perform your duties as the team lead for 

17 

MS. PITNEY: He's answered 

16 

the document execution department changed 

18 

the que.slion. lie gets the 

19 

in any way over the period from August 5, 

19 

affidavit frocn the attorney. 

20 

2009 tet the present date? 

20 

BYMR.COX: 

21 

A. No, 

21 

Q. What is the LPS system? 

22 

Q. Has your jolt description 

22 

A. Tfrai is a communication tool 

23 

changed in any itiaiiner during that time? 

23 

with our attorney tiawork. 

24 

A. I assumed the responsibility 

24 

Q. Is LPS a separate company? 

25 

at. that lime of also haixlling the sers'lce 

25 

A. Yes. 


35 


37 

1 

STEPHAN 

1 

STEPHAN 

2 

tratisfcr team as an additional 

2 

MS. PITNEY: Objection. Tlie 

3 

responsibility; other than dtxiumcnt 

3 

means by which he communicates any 

4 

execution, no, 

4 

details ahtxit - the means by 

5 

Q , In your usvial business 

5 

ufiich hca^minunicates with hLs 

6 

pi'acdice as a team lead for the document 

6 

attorneys is privileged, 

7 

execution team, how docs a summary 

7 

BYMR.COX; 

8 

judgment affidavit come to you, such as 

8 

Q. What does LI^S do? 

9 

the one that is Deposition Dchibh Number 

9 

MS. PITNEY; I'm going to 

10 

i? 

10 

object again on privilege grounds. 

11 

MS. PITNEY; Objection. 

11 

San'ieobiectioii. Do not answer 

12 

Tom, if you'd like to ask him 

12 

that question. 

13 

about how this specific affidavit 

13 

THEWnmSS: Okay. 

14 

came to him, tliat's fine. But, 

14 

BYMR.COX: 

15 

again, you're asking way loo 

15 

Q. Is the source of what vou 

16 

broad. 

16 

know about wfiat I .PS does based upon anv 

17 

BY MIT COX: 

17 

communicaliou that you've had with 

16 

0- Do you know how this 

18 

Inwvers? 

19 

specific affidavit got to you, Mr. 

19 

A. Soiry, Please rephrase 

20 

Stephan? 

20 

that. Ickm’t understand vour ijueslion. 

21 

A- Wc iiave a process in place 

21 

Q. Do you know what LPS dix;s 

22 

thai if our attorney network ne^s an 

22 

with I'cspcct to documents processed by 

23 

affidavit, tliey will upload it into our 

23 

your unit? 

24 

system, which is called LPS. Wc Iiave 

24 

MS. PITNEY: Objection. 

25 

another system, which is a conuiiunication 

25 

Same (Ejection. 


10 (Pages 34 to 37) 


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1 

STEPH.\N 

1 

STEPHAN 

2 

MR. COX: He can answ-cr that 

2 

MR. COX: He can answer the 

3 

yes or no. 

3 

question whether or not he 

4 

THE WITNESS; 1 still don't 

4 

keeps a log, before 1 ask him whal 

5 

undcr.stand what you're asking. 

5 

goes into tlic log. 

6 

BY MR. COX: 

6 

MS. PITNEY: Fine. 

7 

Q. You've mentioned LPS. 

7 

THE WITNESS: No, I don't 

6 

A. Right. 

8 

have a log. 

9 

Q. That's a separate company; 

9 

BY MR. COX: 

10 

is (hat conect? 

10 

Q. Does anybexJy keep a log of 

11 

A. It's a system that we have 

11 

w'hat documents you sign? 

12 

acquired from a compajty by the name of 

12 

MS.PfTNEY: Object to the 

13 

Fidelity, in order to have communication 

13 

fomiof that question. 

14 

between our attorneys. 

14 

THE WITNESS: Please 

15 

Q. Do you have any memory of 

15 

rephrase. 

16 

specifically receiving Deposition 

16 

BY MR. COX; 

17 

Exliibit-1? 

17 

Q. Do yai know if anybcxiy keeps 

18 

A. No. 

18 

a log of what documents you execute? 

19 

Q. Again, I'm asking you, based 

19 

A. Wc have notaries in our 

20 

upon that, to describe what the usual 

20 

department, approximately six, who keep a 

21 

business practice is within your unit, as 

21 

log for what they notarize. 

22 

far as how affidavits, such as Deposition 

22 

Q. These are notaries within 

23 

Exhibit-!, come to you. 

23 

your department? 

24 

A . Our attorney will load it to 

24 

A. That is corraU. 

25 

the LPS system. Mcmbc]^ of my team will 

25 

Q. As 1 imdcrstand it, the 


39 


41 

1 

STEPHAN 

1 

STEPHAN 

2 

print it. Olhei' nieittbcrs will preptuc it. 

2 

fust step is, in your deptutment, a 

3 

The figures have already been loaded trom 

3 

document comes in oti the LPS sy.stem from 

4 

oui' network of attorneys. So mv team 

4 

the outside lawyer; is that conect? 

5 

does not have any input on the affidavit. 

5 

A. That is correct. 

6 

other than filling in my name. They 

6 

Q. .\itd then an employee in your 

7 

bring it to me. 1 review it against our 

7 

depaitmenl prints it out; i.s that 

e 

Fiscrv system, execute it, hand it back. 

e 

coirect? 

9 

Tltcy get it notarizc^l. It's Federal 

9 

A. That is correct. 

10 

Expressed back to the individual attorney 

10 

Q. And then you said tliat the 

11 

asking. 

11 

employee prepares the document . Wltat 

12 

Q. Do you keep a log of any 

12 

does that mean? 

13 

sort of what documents you execute'.' 

13 

MS.Pri'NEY: Objection. The 

14 

MS. PITNEY: I'm sorry. Can 

14 

document is prepared for 

15 

you repeat the question, Tom? 1 

15 

liligatioii. It is privileged. 

16 

could not hear that. 

16 

How it is prepared is privileged. 

17 

BY MR. COX; 

17 

Do nut answxir lhat question. 

18 

Q. Do you keej) a log of any 

18 

BY MR. COX; 

19 

sou of what documents yo<i execute? 

19 

Q. Do y'oui employees have any 

20 

MS.PIfNKY: Objection. 

20 

direct coinniunicatiun willi outside 

21 

Work pixxJuct. Aiiv type of log 

21 

counsel? 

22 

that he keep.s relative to these 

22 

A. Yc,s, through the LPS system. 

23 

affidavits is prepared in 

23 

MS. PITNEY; Objection. How^ 

24 

prepai ation for litigation; to the 

24 

and whal he communicates with his 

25 

extent that one even exists. 

25 

attorney is privilcgcrl, Tom. 


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44 

1 

STEPHAN 

1 

STEPHAN 

2 

MR. COX: I haven't asked 

2 

twice on the first page, and once on the 

3 

for the content. I asked if it 

3 

signature page for you; is that coirect? 

4 

happen.s. 

4 

A. That is correct. 

5 

BY MR, COX: 

5 

Q. And then it's stamped aaain 

6 

Q. Would you answerthe 

6 

on die notary page; is that con ect? 

7 

question, please? 

7 

A. That is conect, 

8 

A. Yes, tlirough iheLPS systian. 

8 

Q. So as I uiidcmand it, an 

9 

Q. Is anything done to a 

9 

affidavit, such as Deposition Exhibit- 1 . 

10 

document submitted to tlie LPS system by 

10 

is initially prepared by outside counsel ? 

11 

an outside lawyer before it reaches y'our 

11 

MS. PITNEY: Objection. 

12 

hands? 

12 

BY MR. COX: 

13 

MS. PITNEY: Objection. 

13 

Q. Is that aiireci? 

14 

Pieparation of lhed(x;umcnt is 

14 

A. Yes. that is conect. 

15 

privileged. It’s for litigation. 

15 

Q. Docs anybody on your team 

16 

Do not answer the question. 

16 

veiify die accuracy of any of the 

17 

BYMR.COX: 

17 

contents of tlie affidavit belbre it 

18 

Q. Is the document that is 

18 

readies your hands? 

19 

received in the TPS system from outside 

19 

MS. PITNEY; Obiection 

20 

couttsel presented to you in exactly tlxr 

20 

again. How’ the document is 

21 

form that it is received in from outside 

21 

prqiarcd - you can ask him 

22 

atunscl? 

22 

questions about the dixumcnt and 

23 

MS. PITNEY: Ohjection. 

23 

what's stated in the document. 

24 

Same objecUon, 

24 

The preparation of the document, 

25 

MR. COX: Is it an 

25 

which is prepared for litigation, 


43 


45 

1 

STEPHAN 

1 

STEPHAN 

2 

objection, or are you instructing 

2 

is privileged. Do not answer the 

3 

him not. to ttnswcr? 

3 

question, Jeff, 

4 

MS, PITNEY: I'm insiaicting 

4 

BYMR.COX: 

5 

tiim not to answer, to the extent 

5 

Q. Mr. Siqihan. do you recall 

6 

you're asking him questions about 

6 

testifying in ytxir Florida deposition in 

7 

a document that was prepared 

7 

Dccembei', vvith regard to your employees, 

8 

specirically during the course of 

8 

and you .said, quote, they do not go into 

9 

litigation. It's protected by 

9 

the .system and verify the infonnaiion as 

10 

privilege, and you caiVt ask him 

10 

accurate? 

11 

questions about it, 

11 

A. Hiat is correct. 

12 

BYMR.COX; 

12 

MS. PITNEY: I'm sorry. 

13 

Q, Deposition Exhibit-] has 

13 

Tom, could you please lepcat what 

14 

yt)ur name stam]>ed on it with a sian^; is 

14 

you just said? I just couldn't 

15 

that con'ect? 

15 

hear. 

16 

A. That i.s coirect. 

16 

MR. COX: Quote: They do 

17 

Q , And belo'v yoiu name, tlie 

17 

not go into tlie .system and vuify 

18 

woi'd.s ''liuiited signing officer" appear; 

18 

tlie information as accurate. 

19 

is (h;st ctmect? 

19 

BY MR, COX; 

20 

A. That i.scarrca. 

20 

Q. Ls that collect? 

21 

Q . Who puls that .stamp on these 

21 

A. That is correct. 

22 

affidavits? 

22 

MR. FLEISCHER: Tom, car you 

23 

A. My team. ' 

23 

reference wliat litigation that was 

24 

Q. On lliisparliailar I 

24 

in. do you know? 

25 

affidavit, your name and title is stanped 

25 

MR. CX)X: The Florida case 


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48 

1 

STEPHAN 

1 

STEPHAN 

2 

ihat he lesiified in. 

2 

A. That would be coircct. 

3 

MR. FLEISCHER; I just 

3 

Q. Roughly, how manv arc 

4 

thought you might have a reference 

4 

brought U) you in a group, on average? 

5 

there. 

5 

A. Throughout a day, I believe 

6 

MR. COX: I'll get it 

6 

we are averaging approximately 400 new 

7 

shortly. 

7 

requests arming in from our attorney 

8 

BY MR. COX: 

8 

nctw'ork. So I would say approximately 

9 

Q. Do you and your 14-person 

9 

400 [)er clay. 

10 

leiim all work in the same physical space? 

10 

Q. This sounds very basic, 

11 

A- Yes. We're all in the Siime 

11 

But, physically, are you handed a pile of 

12 

department. 

12 

100 d(K;uir^ts, 300 documents? How does 

13 

Q. Do you have an office or a 

13 

that work? 

14 

cubicle, or what? 

14 

A. They bring them to me in 

15 

A. Cubicle. 

15 

individual folders from each one of the 

16 

Q. Do the employees bring 

16 

members of ray team. T do not arunt how 

17 

documents fo you to sign? 

17 

many are in the files . 

18 

A. That i.s ccffrcct. 

18 

Q. So each team employee has a 

19 

Q. How many do they bring to 

19 

folder of document; isiiiat arirect? 

20 

you at a time, on average? 

20 

A. Tliat is concct. 

21 

A. For a month, anywhere froin 

21 

Q. W'hen you receive a siimmaiy 

22 

six to 8,QQQ d(x;uments. 

22 

judgmait affidavit to be signed by you, 

23 

Q. Do you recall testifying in 

23 

is it accompanied by any other dcrcuments 

24 

your Florida depositioit in Dumber that 

24 

relating to tlie loan? 

25 

you estimated it was 10,000 documents a 

25 

MS. PITNEY: Objection. The 


47 


49 

1 

STEPHAN 

1 

STEPHAN 

2 

month? 

2 

document is prepared I'or 

3 

A. I do not recall. I’m going 

3 

litigation. And anything he does 

4 

off of numbers within the past month or 

4 

wiren he's preparing it is 

5 

so. 

5 

privilej^l. 

6 

Q. Have those numbers gone down 

6 

MR- COX: Arc you telling 

7 

in the past month or so? 

7 

him not to ^iswer? 

8 

A. There has been a decrease. 

8 

MS. PITNEY: Tam. Tom, if 

9 

Q. Back in December, wet c you 

9 

you want to ask. him about genei'al 

10 

signing in the range ol 10,000 documents 

10 

procedures, which you have been, 

11 

a rtumth? 

11 

then Tm not going to object as 

12 

A. T may liave been. 

12 

niudi. But if you want to ask him 

13 

Q, Back in August of 2009, 

13 

about what goes into prepaiing a 

14 

roughly, how' many documents a month were 

14 

document that was usal for stimmaiy' 

15 

you signing? 

15 

judgment, dial's clearly prq^a^cd 

16 

A. I cannot estimate. I don't 

16 

for liligalioti.and it'.s 

17 

know. 

17 

privilqjed andjrrotccted. 

18 

Q. 130 you believe (hat it was 

18 

MR. COX: Itliiiikyou 

19 

more or Ics.s than tire iiuinber you were 

19 

liaveii'i heard mv question. Julia. 

20 

.signing in ikiceinber? 

20 

ril stale it again. 

21 

A. Tm going to assume, more. 

21 

BY MR. COX; 

22 

Q. And on a given day. 1 

22 

Q. Wtien YOU receive a suminary 

23 

understand an employee brings you a group 

23 

judgment doaimenl for youi execution, is 

24 

ol documents lor you to sign; is that 

24 

it acconpanied bv any other documciils? 

25 

correct? 

25 

MS. PITNEY: My objection is 


13 (Pages 46 to 49 ) 


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1 

STEPHAN 

1 

STEI^HAN 

2 

- you can answer Lhiil question, 

2 

those exhibits attached to tiie affidavit 

3 

Jeff. 

3 

at the time that you sign (hem? 

4 

THE 'W'TTNESS; Tliereare 

4 

MS. PITNEY: Objection. 

5 

limes when it has the Complaint 

5 

You're asking about a document 

6 

connected. There are limes when 

6 

tltat was prepared by an attorney. 

7 

it is brought to me just as the 

7 

Anything that comes with it that 

8 

affidavit. 

8 

he's a.skcd to review is 

9 

BY MR. COX: 

9 

privileged - tlie communication 

10 

Q. When you say that ihere are 

10 

between a client and an attomcv. 

11 

limes when it conies to you with a 

11 

Do not answer the question. 

12 

Complaint connected, you mean attached as 

12 

BY MR. COX: 

13 

an exhibit? 

13 

Q. Mr. -Stephan, would you 

14 

A. Such as tliis one, yes. 

14 

plea.se look at Par agraph 3 of Exliibil- 1 . 

15 

Q. When you .say "this one,” 

15 

Do yr)u sec there the statement: That a 

16 

youVe referring to Deposition Exhibit-1 ? 

16 

true and correct copy of which is 

17 

A. Yes. that is coirect. 

17 

attached hereto is Exhibit-A? 

18 

Q. Deposition Exliibit-J has 

18 

A. Where arc you looking? 

19 

several exhibits attached to it; is that 

19 

Q. Pai'agraph 3. Do you see 

20 

collect? 

20 

that statement? 

21 

MS , PITNEY Could you 

21 

A. Yes, I do, 

22 

please tell me what the exhibits 

22 

Q. When you sign an affidavit 

23 

that are attadicd are, because 1 

23 

such a.s Exhibit- 1 . are the exhibits 

24 

don't have the benefit of having 

24 

attached to it? 

25 

them in front of me? 

25 

MS. PITNEY: Objection. A 


51 


53 

1 

STEPHAN 

1 

STEPHAN 

2 

THEWTTNP.SS: Exhibii-Aisa 

2 

document that's provided to him by 

3 

copy of the note and the - 

3 

an attorney is privileged. 

4 

MR. COX: Julia, this is 

4 

MR. COX: Ai-c you telling 

5 

your summary judgment affidavit. 

5 

him not to answer that question? 

6 

MS.Pm^Y: I'm not 

6 

MS. PITNEY; Yes. 111 say 

7 

doubting that it is. Ijust don't 

7 

again. Tom, if you would like to 

8 

know what these other ocliibits 

8 

a-sk him ta»ouT die facts that are 

9 

attached arc, 

9 

in the affidavit . the details 

10 

IvTR.COX: Don't you have 

10 

about this loan - which I might 

11 

your copy? 

11 

remind you involves a woman by the 

12 

MS. PITNEY: YouVcthcone 

12 

tiaiiic of Nicole Bradburv - then 

13 

verifying if they're the same as 

13 

I'm sureJeff will answer your 

14 

the one I'm kxiking at. Tom. 

14 

question? 

15 

THEWNFiS: Exliibit-Bis 

15 

MR- COX: Well, he has the 

16 

the mortgage. Exhibit-C is the 

16 

affidavit in front of him in this 

17 

assignment ol note and moitgagc. 

17 

case. And the affidavit whicli lie 

18 

Exhibit-D - 1 believe we're 

18 

swore lo,says a tiue and correct 

19 

I(K)king at the demand, or the 

19 

copy of the note is attached to 

20 

Incach letter. And those are the 

20 

it. And I'm asking him if that 

21 

lour dixiuincnts that arc a)nnectcd 

21 

docuuieiil was attached to it at the 

22 

to this affidavit of summary 

22 

time that he signed it . 

23 

judgment, 

23 

BYMR.OOX; 

24 

BY MR. COX: 

24 

Q. Would you please answer that 


Q. In you]- usual practice, are 

25 

question? 


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56 

1 

STEPHAN 

1 

STEPH/\N 

2 

A. To iny knowledge, I do nol 

2 

necessarily know that. 

3 

recall. 

3 

MR. COX: The physical 

4 

Q. Is it your usiual business 

4 

movement of a dfxrument is not a 

5 

practice to have exhibits attached to 

5 

communication. It's a fact. 

6 

affidavits that you sign? 

6 

BY MR. COX; 

7 

A. Yes. 

7 

Q. My question to you is, where 

8 

Q, All exhibits? 

8 

d(Ks a suiTunary judgment go after you sign 

9 

MS , PITNEY: Object to form. 

9 

it? 

10 

THE WITNESS: Ido not know. 

10 

A. After I sign it, it is 

11 

BY MR. COX: 

11 

lianded back U) my staff. My staff hands 

12 

Q. WTien you sign a summary' 

12 

it lo a notary for notarization. It is 

13 

judgment affidavit, do vou check to sec 

13 

then handed back to mv staff. They send 

14 

if all the exhibits are attached to h? 

14 

it back to the network attorney 

15 

A. No. 

15 

requesting any type of affidavit. 

16 

Q, Docs anvbody in your 

16 

Q. So you do not appear before 

17 

dcpaitmcnt check to see if all the 

17 

the notary'; is that correct? 

18 

exhibits are attached to it at the time 

18 

A. Ido not, 

19 

that it is presented to you for y-our 

19 

Q. What does your staff do with 

20 

signature? 

20 

a summary judgment affidavit, such as 

21 

A, No. 

21 

Deposition Exhibii-1 , after it receives 

22 

Q, ’A'hen you sign a summary 

22 

il back from the notary? 

23 

judgment aliidavii, do you inspect any 

23 

A. They go into our LPS syslcnj, 

24 

exhibits attached toil? 

24 

close out process, stating it's being 

25 

A. No. 

25 

sent back to -- 


55 


57 

1 

STEPa-'tN 

1 

STEPHAN 

2 

MS. PITNEY: CiHildyou 

2 

MS. PITNEY: Objection. 

3 

repeat the question, Tom? Did you 

3 

SoiTy. I dem't mean to interrupt 

4 

say or can you have it read 

4 

you, Jeff. Im going to instruct 

5 

back, please? 

5 

you not to answer anything else, 

6 

(Wliereupon, the pertinent 

6 

because you’ve already lesiified 

7 

portion of Lite record was read.) 

7 

that the LP.S system is the means 

8 

MS, PITNEY: Object to the 

8 

bv which vou communicate with your 

9 

form. 

9 

attemey. The attomey/client 

10 

BY MR. COX: 

10 

communication is privileged. So 

11 

Q. What happens to an affidavit 

11 

don't amlinue to answer the 

12 

in your department after you sign it? 

12 

question, 

13 

MS.PITNKY; Objection. 

13 

Actually, if there is no 

14 

Wdiat happens to the document 

14 

question, pending. I'd like lo 

15 

afterwards is — it's in the 

15 

take a brief break to discuss 

16 

covirse of litigation. The same 

16 

something with Brian Fleischer. 

17 

objection as 1 saitl befoiv. Where 

17 

(Wfiereupon, a short recess 

18 

it gixis is privileged. 

18 

was taken.) 

19 

MR. COX: Where it goes IS 

19 

BY MR. COX: 

20 

not a coimmiiilcation. It is not 

20 

Q. Mr, Stephan, do you recall 

21 

privileged- 

21 

testifying in your Idorida deposition in 

22 

MS . PITNEY: You don't know 

22 

December that vou rely on your altontey 

23 

that. 

23 

network to cn.surc tliat the documents that 

24 

MR, COX; Pardon me? 

24 

you receive are correct and accurate? 

25 

MS. PITNEY: You don't 

25 

A. ThaiLscoirccl, 


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60 

1 

STEPR-VN 

1 

STEPRkN 

2 

Q. And is that, in fact, the 

2 

I'm saying, yes , it looks airrect 

3 

case? 

3 

in my computer system. 

4 

A, Yes. 

4 

BY MR. COX: 

5 

Q. And your depailmeni does not 

5 

Q. Is there anything else that 

6 

do any independent accuracy check of 

6 

you look at in your computer system when 

7 

those records; isn't lliat correct? 

7 

you're .signing a summary judgment 

8 

MR, FLEISCHER; Objection as 

8 

affidavit? 

9 

I'omi. 

9 

MS. PITNEY; I'm sorry. I 

10 

'IHEWTENESS: Can you 

10 

couldn't hear the last part ol 

11 

rephrase? 

11 

thiU. 

12 

BYMR.COX: 

12 

BYMR.COX: 

13 

Q. Your dcpaitmcnt does not do 

13 

Q. Ls there anylliing else dial 

14 

any independent check of tlic accuracy' of 

14 

you IcKtkat in your computer system at 

15 

the infonnation on the siinunary judgments 

15 

the lime lliat you sign a summary judgment 

16 

u)ming to you; i.sn’t that anrect? 

16 

affidavit? 

17 

A. I review, quickly, the 

17 

A. The t«]iv other diing I 

18 

figures . Otlrcr than that, that's about 

18 

can- 

19 

it. 

19 

MS. PITNEY: Oncseamd. 

20 

Q. Do you recall leslifying in 

20 

Arc wc talking about the computer 

21 

your Florida deposition in Dccenrbcr, that 

21 

system, the communication system? 

22 

ilic affidavits that you sign arc not 

22 

I jiLsi was asking for 

23 

based upon your own p^sonal knowledge? 

23 

claiificatUMi t)f - 

24 

A. Ido not recall. 

24 

MR. COX: I-ct me clarify it, 

25 

MS. PITNEY: Objection to 

25 

MS. PITNEY; VrTiat computer 


59 


61 

1 

S1T.PHAN 

1 

STEPHAN 

2 

the form. 

2 

conununicaiion system Tom was 

3 

BYMR.COX; 

3 

asking him al.iout. 

4 

Q, You do not recall iljat? 

4 

BYMR.COX: 

5 

A, Ido not recall. 

5 

Q. You testify tlial you go into 

6 

Q , When you receive a summary 

6 

the First Serve (sic) system; is that 

7 

judgiticni affidavit front one of your staff 

7 

correa? 

8 

members, what do you do with it? 

8 

A. Yes.Fiscrv. 

9 

A. 1 will first review it 

9 

Q. Fiserv. rX) yougo into any 

10 

against otu' computer sysian, wliich is 

10 

other computer .system at the time tliai 

11 

Fisciv, in general terms, to verity that 

11 

you're signing a summary judgment 

12 

the figures are correct. And tlicn I will 

12 

affidavit? 

13 

execute it and hand it back to my .staff 

13 

A, No. 

14 

to have it notarized. 

14 

Q. And vou just testified that 

15 

Q. You say "in general terms'' 

15 

you look at principal, interest, late 

16 

vou review it. Wliat do you metin? 

16 

charges and escrow; is that coiTCCt? 

17 

MS. P[TNI?Y: Objection. 

17 

A. That is correct. 

18 

TflF.WlTNF.SS: I compare the 

18 

0, Is ihcre anylliing else that 

19 

priiicipai balance, (rcvicwtlx’. 

19 

you ItKjk at in your computei system when 

20 

interests . I take a look at the 

20 

you're signing a summary judgment 

21 

late charges. I look at the 

21 

affidavit? 

22 

outstanding escrow' amounts. When 

22 

A. The only thing I review. 

23 

T.say "eencral lams," 1 rixanl’m 

23 

otlrcr than that, is w'ho the borrower is. 

24 

nol looking at the escTow and 

24 

Q. \Micn you receive a summary 

25 

breaking it down to the penny. 

25 

judgmertalfidavit to sign, do you read 


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64 

1 

STEPHAN 

1 

STEPHAN 

2 

every paragraph of it? 

2 

volume of documents that you sign? 

3 

A. No. 

3 

A. No. 

4 

Q. What do you I'ead? 

4 

Q. Is any pait of your 

5 

A. I look for Ihefigiircii. 

5 

compaisalion tied to the volume of 

6 

Q. Tliat's all that you look at 

6 

documents tliat your dcpanmenl processes? 

7 

wJien you sign a suinmary judgment 

7 

A. No. 

8 

affidavit? 

8 

Q. Is it your understtmding 

9 

A. Yes. to ensure that the 

9 

tliat the process that you follow in 

10 

figures are correct. 

10 

signing sununary judgment affidavits is 

1 1 

Q. Is it fair to say then that 

11 

in accordance with the policies and 

12 

wlicn you sign a summary judgment 

12 

procedures required of you by GMAC 

13 

affidavit, you do not know wjiat it says, 

13 

Morlcage? 

14 

other than wiiat the figures are that arc 

14 

A. Yes. 

15 

contained within it? 

15 

Q. Does GMAC do any quality 

16 

MR. FLEISCHER: Objection as 

16 

as.surance training for your deiiaitmeiU ? 

17 

to form. 

17 

A. Prc.scntly, no. 

18 

MS. PITNEY: Objection to 

18 

Q. Has it in the past? 

19 

tile form of the question. 

19 

A. Ido not know. 

20 

TI-IH WITNESS: Please 

20 

Q. You don't recall any? 

21 

rephrase. 

21 

A. I never rcccivcd any. 

22 

BY MR, COX: 

22 

0- Do you have any memory of 

23 

Q, It lair to say that wlx:n you 

23 

cljeckingUie numbers on the Bradbury 

24 

sign a summary judgment alfidavit, you 

24 

affidavit that's in front ol you as 

25 

don't know what information it contains, 

25 

Dec>osition Exlubit-I ? 


63 


65 

1 

STEPHAN 

1 

STEPHAN 

2 

other lluin the figures lltat arc ,sct fottli 

2 

A. 1 do not reciill. 

3 

within it? 

3 

Q. If a loan has been modified, 

4 

A, Otlier ihtin tlie borrower’s 


docs tliat show up in the Fiscrv system 

5 

name, and if I Itave signing authority tor 

5 

tliat you look at? 

6 

that entity. Tliat is correct. 

6 

A. When you say ''modilied," are 

7 

0. The practice that you've 

7 

you staling a loan modification? 

8 

just described for .signing summary 

8 

Q. Yes. 

9 

judgirent affidavits is tJie practice that 

9 

A. Yes. 

10 

you use signing all sunmtry jiklgincnt 

10 

Q. Does that show up? 

11 

affidavits that you liandlc; is that 

11 

A. Yes. 

12 

correct? 

12 

Q. if a loan has been modified, 

13 

MR, FLEISCHER; Again. Pm 

13 

is any information put in the suinmiu 7 

14 

going to object to tile I'oim oi llic 

14 

judgment affidavits that you sign about 

15 

question. 

15 

that? 

16 

BY MR. COX: 

16 

MR. FLEISCHER; Objection, 

17 

0- Is that coricct? 

17 

Arc you calking about modified, or 

18 

A. Thejjraclice that I useftw 

18 

liislcnnwas loan iTiodificalion. T 

19 

simiirarv judgment alTKlavits Ls the .same 

19 

just want to make sure we're 

2 0 

[iraclice ihu I use for all affidavits. 

20 

clear. 

2 1 

Q. And tliat's the one that 

21 

MR. COX; Thai’s line. 

22 

you've just descfibed? 

22 

BY MR. COX; 

23 

A. Yes, 

23 

Q. If there's a loan 

24 

Q. Is any part of ytxir 

24 

modification, does infomiation about a 

25 

coirpensalion at GMAC Mortgage tied to the 

25 

loan inodilicalion appeal' in the summary 


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I 

1 

68 

1 

STEPHAN 

1 

STEPHAN 

2 

judgment affidavits that you sign? 

! 2 

Q. Is it correct? 

3 

A. 1 do not know. 

3 

A. That is conect. 

4 

MS . PITNEY: In aU of them, 

4 

Q. And isn't it also correct 

5 

or in this one? 

5 

that yx)u do not check the number s on 

6 

MR. COX: In any of them. 

6 

every single summary judgment affidavit 

7 

THE WITNESS: I don't know. 

7 

that you sign? 

8 

BY MR. COX: 

8 

A. That is not correct. 

9 

Q. Based upon your lesthiKHiy, 

9 

Q. Ycai check eveiy single one? 

10 

Mr. Stephan, is it corixxt that v4ien you 

10 

A. Yes. 

11 

sign a summary' judgment iiffidavit, such 

11 

Q. How long does it lake yem, 

12 

as Deposition Exhibit- 1 that is in front 

12 

on average, m pnxess the execution of a 

13 

ol you, you don't know whether any 

13 

summary judgment affidavit? 

14 

portion of it is Imc, othei than the 

14 

MS. PITNEY: Object to the 

15 

paragiaph containing the numbers that 

15 

form. 

16 

you just describeci; is that arrrect? 

16 

MR. COX: Please aiuswer. 

17 

MS. PITNEY: Object to the 

17 

THHWn'NHSS: Anywhere from 

18 

form. Tom, arc you asking him 

18 

five to 10 minutes, off the top ol' 

19 

about this affidavit? 

19 

my head. 

20 

MR. COX: Well, he's 

20 

MR, COX: If vve can take a 

21 

testified that doesn't recall 

21 

break. I may be done, but wc can 

22 

signing this paiticular affidavit, 

22 

take a break for five minutes. 

23 

so that was not my question. Lei 

23 

(Wlicreupon, a short recess 

24 

me restate it. 

24 

was taken.) 

25 

BY MR. COX: 

25 

BY MR. COX: 


67 


69 

1 

STEPHAN 

1 

STEPHAN 

2 

Q. In your practice of signing 

2 

Q. Mr. Stq)han, referring vou 

3 

summary judgment affidavits, Mr. Stephan, 

3 

again to the borromJine on Page 1 of 

4 

is it correct that they always have a 

4 

Exhibit-Lit states: Ihaveundermy 

5 

paragraph containing the numbej s ol the 

5 

custody and control, the records relating 

6 

amounts claiming to be due? 

6 

to the rnongage iransaciiou referenced 

7 

A. That would be correct. 

7 

below. 

8 

Q, And is it atrreci that when 

8 

It's correct, is it not, 

9 

you sign those ulTiclavils. you don’t know 

9 

that vou did not have in your custody any 

10 

whethCT any other pan of the allidavii 

10 

records oI'GMAC at the time that you 

11 

is true or correct? 

11 

signed a suinmaiy judgment affidavit? 

12 

A. Please advise me. What do 

12 

MS. PITNEY: Objection to 

13 

you mean hy "any other p.in''? 

13 

the Phto. 

14 

Q, Any other paragraph, other 

14 

THE WITNESS: Iliavethe 

15 

than the one containing the numbers. 

15 

electronic record, do not have 

16 

A. I review it for the due 

16 

papers. 

17 

date, if that's includai in there. 

17 

BY MR. COX; 

18 

Q- So all of iheiii- 

18 

Q. You have access to a 

19 

A. So that would lx.' the 

19 

computer. Is that what you meaiH 

20 

numl)eis. 

20 

A. Yes. 

2 1 

Q, So otlicr than tlic due date 

21 

Q. You have no control over 

22 

and the balances due, is it correct that 

22 

that system, do you? 

23 

you do not know whether any olhCT part (jf 

23 

MIL FLEISCHER: Objection as 

24 

the affidavit that you sign is true? 

24 

to form. 

25 

A . Th at could be correct . 

25 

BY MR. COX: 


18 (Pages 66 to 69) 


DiscoveryWorks Global 888.557.8650 www.dw-global.cora 


55 




347 


70 

72 

1 STEPHAN 

1 

2 Q, You have no control over 

2 I have rearl the forcqoing transaipi 

3 that Fiserv computer system, do tou? 

3 of my deposition given on June 7, 2010. 

4 A. No, I do not. 

4 and it is Ime, rorrect and con^lete, to the 

5 Q. And sojncoiie else within GMAC 

5 best ol rity biowledge, recollection and belief. 

6 is responsible for ensuring the accuracy 

6 except for die corrections noted hereon and/or 

7 of that system; isn't that correct? 

7 list of corrections, if any, attached on a 

8 A. That would be correct . 

8 separate sheet hcrewitii. 

y MK.LUX: 1 have no further 

9 

10 questions. 

10 

1 1 MR. FLEISCHER; We're done. 

11 

1 2 Julia, unless you hawj something 

12 JEFFREY STEPHAN 

13 to add. 

13 

1 4 MS. PITNEY: No. 

14 

1 5 (Witness excused.) 

15 

16 

16 

1 7 (Wl:eretipon, the deposition 

1 7 Suliscriba.1 and sworn to 

1 8 concluded at 1 ] :45 ajn.) 

1 8 before me Uiis ____ day I 

19 

19 of .2010. 

20 

20 1 

21 

21 

22 

22 

23 

23 Notary Public I 

24 

24 

25 

25 

71 

73 

1 

1 

2 INDEX 

2 CERTinCATE 

3 Testimony of: Jeffrey Stephan 

3 1 HEREBY CERTIFY that the witness 

4 BvMr. Cox 4 

4 was duly sworn by me and that the 

5 

5 deposition is a true record of the 

6 

6 testimony given by the vritness, 

7 

8 EXHIBITS 

8 

9 ... 

10 



11 NO. DESCRIPTION PAGE 

11 Registered Piofcssional Reporter 


and Notary Public 

13 1 Affidavit 3 

12 Dated: June 9, 2010 

August 5, 2009 

13 

15 

14 

16 

15 

17 

16 

18 

17 


18 (The foregoing ccrtificnlioii 


19 of this transcript does ant appjv to any 


2 0 reprodiiclioii of the same by any means , 


2 1 unless under the direct control and/or 


22 supervisUm of the certifying 


23 reporter.) 

24 

24 

25 

25 


19 (Pages 70 to 73) 


DiscoveryWorks Global 888.557.8650 v7ww.dw-global.com 


56 



348 


Exhibit 5 



349 


Timeline of JPMorgan Chase Abuse of Bankruptcy Process 
in the Southern District of New York 

Prepared by Linda Tirelli, Esq. 

April 2008 : SONY BK In re Schuessler: Mortgagee secured claim Hied by Chase and its 
foreclosure mill attorneys at Steven J Baum PC Judge. Bankruptcy Judge Cecelia Morris 
writes a 62 page decision blasting the parties for omitting pertinent facts and not having a 
system of checks and balances. The debtor attempted to make a payment that the bank 
refused, they mailed it in. A motion for relief from stay to foreclose was automatically 
generated by Baum firm triggered by LPS - no one checked the facts. This case is famous 
throughout the Bankruptcy litigation community largely because the Judge is clear in her 
opinion that an omission of material fact is as much an abuse of process as a false 
statement, 

August 2008 : SONY BK In re Pa wso n: Judge Martin Glenn tells Chase, " In re Schuessler 
was strike one, this is strike two and you know what happens on strike three." Chase 
argues to keep the record sealed Judge Glenn denies the request. Case settled (It was 
included $50,000 legal fees paid to the debtors attorney and compensation to the debtors 
via loan modification. 

November 2008 : SONY BK In re Nuer: SONY 08-14106 (aka - "strike 3") Chase, LPS and 
foreclosure mill firm of Steven J. Baum, P.C.’s office submit 2 bogus assignments of 
mortgage both dated the same date one signed by Scott Walter an employee at LPS and the 
second signed by Ann Garbis a Vice President at Chase. Each purports to assign the loan 
from Chase to a CLOSED securitized trust. Chase NEVER owned the loan - period. 

February 2009 ; In re Pawson : Chase sends a letter to the U.S. Trustees office in the 
Department of Justice, not legal binding itself to any course of action but stating an intent 
to discontinue its practices (which were the filing of mortgage assignments for loans that it 
never owned. Notwithstanding this letter Chase continues to dig heels in the ground in the 
Nuer case 

January 2010; In re Nu er: Lf.S. Department of Justice Office of the U.S, Trustee files a 
Memorandum in of Support of Sanctions against Chase in In re N uer for Chase's dishonesty 
in filing false statements and false assignments of a loan that Chase never owned. 

January 7. 2010 : In re Nue r: In a hearing before Hon Robert Gerber, Chase through its 
attorney admits the documents complained about in Nuer back in 2008 are factually 
inaccurate. 

January 2010: In. re Nuer:, By letter (without any proper pleading) Chase attempts to 
withdraw its false pleading and documents from the Nuer case without reserving the rights 
of the debtor to assert claims for damages resulting from the filings of those false pleadings. 
I filed a Motion to Strike the withdrawal with the court based on the fact that a year of 
litigation had damaged the debtor, had caused the Debtor to run up a very large legal bill 
and had left the homeowner association dues unpaid for all that time. I did include a 
"Conditional Motion for Sanctions and Fees" with my original objection to the Chase's 
motion for relief from the automatic stay under Section 363 of the Bankruptcy Code. 


58 



350 


I imeiine or jrnorgan cnase ADuse or Bankruptcy Process 
in the Southern District of New York 

Prepared by Linda Tirelli, Esq. 

January 2010; Texas BK In re Honakeo: Chase and its attorneys fife a bogus assignment 
of Deed of Trust dated in 2008 signed the famous Robo Signors "Bryan Bly & Crystal 
Moore" The Hongkeo case mirrors Nuer on many levels. The bogus Chase mortgage 
assignment purported to be an assignment by Chase of the mortgage in issue, but Chase 
never owned any interest in that mortgage. 

February 2010; In re Nuer: Judge Gerber hears Debtor's motion to strike Chase's 
improper letter trying to withdraw its false documents and accepts my arguments assuring 
the Debtor that all her rights and remedies to assert claims against Chase are to be 
preserved. Chase then enters a stipulated agreement with Debtor and U.S. Trustee to 
withdraw its false pleading and reserve the right of the debtorto seek damages and 
sanctions. Chase does nothing to attempt to resolve the case with the Debtor. Parties 
proceed with depositions. Both Ann Garbis of LPS and Scott Walter of Chase, testify to 
signing the assignments (of mortgage interests that Chase never owned), never verifying 
any of the information beyond the date and the spelling of their names, Garbis testified the 
internal practice of Chase is to sign a folder full of documents daily and send them to a 
different department to be notarized and returned to the foreclosure mill attorneys. Their 
testimony confirmed the business practice of Chase to routinely have false notarizations - 
an illegal act. 

June 2010; ED NY In re Palaza : Chase filed a proof of claim in the EDNY which purports 
to assign a mortgage from JP Morgan as successor in interest to Washington Mutual 
(assignor) indicating a FL address to Deutsche Bank as Trustee for Long Beach Mortgage 
loan Trust 2005-WLl (Assignee) Chase never owed that mortgage loan either. 

Furthermore that trust's closing date passed 5 years earlier on 2005, thus, even if it had 
owned that mortgage, its purported assignment of it five years after the trust dosed would 
have been invalid. This document is signed by robo-signor Wanda Chapman in Florence 
County SC. 

September 2010; Chase tells the world In a series of press releases that while there may 
be "some minor issues" with a few of their documents, they have never withdrawn their 
blatantly false documents from any of these case - despite the FACT they stipulated to do 
exactly that in Nuer just 7 months prior. 

October 2010: SD NY In re H ardesty: Chase and its foreclosure Mill attorneys at Steven 
Baum P.C. office submit another bogus assignment of mortgage to the US Bankruptcy Court 
in the case of. It is a bogus assignment by Chase of a mortgage interest, which it never 
owned to a securitized trust that closed years prior to the date to the assignment. Baum 
filed a Motion to Compel Abandonment by the Debtor of the interest in the property of the 
estate, i.e., the debtor's home, so that the firm could proceed to foreclose. The Ch.7 
Trustee, not realizing the false nature and significance of the document, consults me and I 
advise the Ch. 7 Trustee to immediately contact the U.S. Dept, of Justice Office of the U.S. 
Ch. 13 Trustee, Attorney Gregory Zipes, to report suspected fraud. 

Attorney Zipes immediately contacts the Steven Baum, P.C. Bankruptcy Litigation 
department manager Amy Polowy, Esq. and Attorney Jay Teitelbaum of Teitelbaum & Baskin, 


59 



351 


Timeline of JPMorgan Chase Abuse of Bankruptcy Process 
in the Southern District of New York 

Prepared by Linda Tirelll^ Esq. 

Chase's second tier attorney, to inquire. Within 1 hour, a letter from the Baum firm is filed 
on the court's ECF system withdrawing the Motion. Ail documents remain on ECF. The facts 
and documents submitted in Hardesty mirror the facts in Nuer. 

October 2010 : - Chase Tells Florida's Attorney General that it is not filing false documents 
in its cases. 

November 2010; SD NY In. T? Bruce: Chase and its attorneys submit a bogus 
Assignment of Mortgage (assigning a mortgage never owned by Chase) signed by robo- 
signor "Wanda Chapman" who claims to be an officer of MER5 making an assignment from 
assignor "WMC Mortgage Corp." indicating a Florida address, to an assignee, "US National 
Bank Association as Trustee for JPMorgan Mortgage Acquisition Trust 2006-WMC4Asset 
Backed Pass Through Certificates Series 2006-WMC4" indicating a Minnesota address. Ms. 
Chapman curiously signed the document as per notarized acknowledgment, in Florence 
County SC. Chase is the purported servicer to the trust and Ms. Chapman, according to 
the collection of her signatures on other sworn documents that we have is actually 
employed by Chase. Her Internet Linkedin account profile indicates that she is actually an 
"Operations Unit Manager for JP Morgan" working in Florence County, SC. 


3 


60 



352 


Exhibit 6 


61 



353 


IN THE CIRCUIT COURT OF THE FOURTH 
JUDICIAL CIRCUIT. IN AND FOR DUVAL 
COUNTY, FLORIDA 


CASE NUMBER: I6-2004.-CA-4835-XXXX-MA_ 

DIVISiON: CV-E 



would state as follows; 

1 . On or about August 6, 2004, Plaintiff filed a Motion for Summary Judgment with 
this Court. In support of the Motion for Suinmaj-y Judgment, Plaintiff contemporaneously filed 
an Affidavit of Indebtedness signed and subscribed by Margie Kwiatanowski, a "Limited Signing 
Officer” with CiMAC Mortgage Corporation (“GMAC”), the servicing agent for Plaintiff, 
PlaintilT filed subsequent Anendcd Motions for Suininaxy Judgment on March 10, 2005 and 
November 3, 2005, and again filed AJlidavits of Indebtedness signed and subscribed by Ms. 
Kwiatanowski, as a Limited Signing Officer. 


62 



354 


2. The Affidavits of Indebtedness contains Ms. Kwiatanowski’s statements, 
allegedly under oath, on behalf of GMAC, that she. 

— ‘personal knowledgfrof -the-statis. of aU inortgages_andjl.Qtea omeland . 

held by said corporation.” (Affidavit, paragraph 1). 

(b) has ‘‘examined the relevanl'loan documents and the Complaint, and each 
allegation of the Complaint is corrccL" OAfBdavit, paragraph 2). 

(c) is familiar with the loan payment records, which arc regularly compiled and 
niainmined as business records: ‘-These records properly reflect loan payments, charges, and 
advances that are noted in the records at the time of the applicable transactions by persons whose 
regular duties include recording this information.” (Affidavit, paragraph 3). 

(d) swore and subscribed to the statements before a Notary. 

3 The Affidavits additionally detail the alleged facts as the status of the mortgage, 
including the material dates, the amount owed and the fees and charges, 

4. Ms. Kwiatanowski was deposed at GMAC’s facility in Horsham, Pennsylvania, 
on January 31, 2006. See, Notice of Deposition, attached hereto as Exhibit “A” and incorporated 
by reference. During the deposition, Ms. Kwiatanowski admitted the above statements under 
oath were false; 

fa^ has “persnnal knowledge of the Stat us of all mortgages and notes owned 
and held bv said corporation.” (Affidavit, par agraph.!), 

Ms. Kwiatanowski admitted that, while she can access other loan documents, the 

statement regarding personal knowledge was false; 

2 


6 



355 


Q. AJl right. Let me ask you to go to the Amentkd Affidavit, 
which is Jackson 00006. And we’ll start with page - - I’m sorry, 
paragraph 1. 

- It states that you-roa-limitcd-si^iingoffir^-and-thatyou have - - 

personal knowledge of the status of all mortgages and notes owned 
and held by said corporation. 

Do you see that? 

A. Yes, Ido. 

Q. How is that true? 

A. Well, generally, I understand what a note and a mortgage is, 
and how - - how the loan is originated, 

Q. Right. But this says you have personal knowledge of the 
status of all mortgages owned and held by .said corporation; 
corporation being TCIF RE02, LLC? 

A. Well, actually, we’re the servicing agent for tliem. We 
would not have originated the loan. 

I’m not quite sure how to answer your question, though, 

Q, Well, how is it Uiat you have personal knowledge of the 
status of all mortgages serviced by GMAC for Uii.s claimant? 

A. Again, I’m not - - 1 don’t know. 

Q. Do you have personal knowledge of the status of all 
mortgages and notes serviced by GMAC for this claimant? 

A. No, I do not. 

Deposition of Margie Kwiatanowski, taken January 31, 2006 (p. 30 line 9 - p. 31 
line 15) (empha, sis added) 

( h) h as “ examined the relevant loan documents and the Complaint, and 
allegation of the Complaint is correct.” (Affidavit, paragraph 2). 


64 



356 


Ms. Kwiatanowski testified she reviewed only a single computer screen prepared 

by someone else. She did not review loan documents, much less the “relevant” ones, and did 

-not read the Complaint ^ 

Q. Now, paragraph 2 - - and I’m just jumping ahead to your 
affidavit. But your affidavits, as you may be familiar, referenced 
the fact that you reviewed certain things in order to sign the 
affidavits? 

A. That’s correct. 

Q. Okay. The records in paragraph 2 that are requested are: 

Any and all documents, electronic memoranda, policy manuals, 
seivicing manuals, or other items of any kind reviewed in 
preparation for completion of the AfGdavit of Indebtedness dated 
July 15, 2004, and Amended Affidavit of Indebtedness dated 
October 20, 2005. And your affidavits are then attached after this. 

But my next question is: Is there anything other than what’s sitting 
to your left, that you recall reviewing in order to prepare the two 
affidavits? 

A. 1 would have - - excuse me, F’m sorry. I would have 
reviewed a screen in our system that populates what the total 
indebtedness is. And I don’t believe a copy of that screen is within 
this pile. 

Q. Okay. Are you saying that you reviewed a single screen? 

A. Yes. 

Q. And when I’m picturing a screen, I’m picturing a single 
page of information; or is there more than one page of information 
that appears on your screen? 

A . ITiere is one page of information. 

Q, What is that page of information called? 

A. If s called the foreclosure work screen. 


65 



357 


Deposition of Margie Kwiatanowski, taken January 31, 2006 (p. 19 line 13 -p. 20 

line 24) 

% ♦ . # 

Q. Okay. Did you review the payment historj'^ separately? 

A. I would have no reason to review it separately. 

Q. Okay. Tn other words, you did not review the payment 
history before completing your affidavit? 

A. Tliat’s correct. 

Q. Would you have reviewed the actual note of mortgage 
before completing your affidavit? 

A. No, I would not have. 

Q. Would you have reviewed any of the customer history log, 

the document, the discussions back and forth between the 
mortgagors and the servicing company? 

A. No, 1 would not have. 

Q, Is it fair to say, then, that in completing an affidavit 
such as the ones we have attached as Bates stamped .Jackson 3 
through 5, and Jackson 6 through 8, that you would have 
reviewed one computer screen called the foreclosure work 
screen? 

A. That’s correct. 

Q. And nothing else? 

A. That’s correct. 

Deposition of Margie Kwiatanowski, taken January 31, 2006 (p. 22 line 16 -p.23 
line 17) (einpha.sis added) 


66 



358 


* * * 

Q. Paragraph 2, it says; Ttave examined the relevant loan 

docranenta and 4he-Gomplaintv^d each- allegation of-tke 

Complaint is correct. 

Is the Complaint part of the foreclosure work screen? 

A. No, it is not. 

Q. Would you have actually read the Complaint before signing 
the Amended Affidavit of Indebtedness? 

A. No, I would not. I could have reviewed it because generally 
they are downloaded in a system that we have linked to our 
attorneys. 

Q. Scanned? 

A. Yes. Imaged. 

Q. Imaged? 

A. Um-hmm. 

Q. Do you know whether it’s general practice to bring up the 
image of the Complaint when you’re reviewing the foreclosure 
work screen? 

A. No, I would not. 

Q. So typically you would not examine the Complaint before 

signing the affidavit? 

A. That’s correct. 

Q. We’ve already covered that you review the foreclosure 

work screen. 

What arc the “relevant loan documents” that are referenced in 
paragraph 2? 


6 


67 



359 


A. I would think ihat they would have been an>thing that is 
supplied to tile foreclosing attorney; it would be the mortgage, the 
note, the title policy. 

Q And did you. review the relevant loan documents 

consisting of the mortgage and the note and the title policy 
before signing the Amended Affidavit of Indebtedness? 

A. No, I did not. 

Deposition of Margie Kwiatanowski,taken January 31, 2006 (p. 31 line 16 - p. 33 
line 6) (emphasis added) 

Ccl “These records properly reflect loan payments, charges, and advances that 

arc noted in the records at the time of the applicable transactions by persons whose regular 

duties include recording this information.** (Affidavit, paragraph 3). 

Ms. Kwiatanowski admitted that she had no knowledge of whether the 

information kept was recorded “at the time of the applicable transaction by persons whose 

regular duties include recording this information,” and simply relies on the “system” without 

having any idea how or whether the “system” confirms entries arc made accurately and timely; 

Q. Do you agree that that sentence, the last sentence of 
paragraph 3 of your affidavit, indicates that the entries are made at 
the time of the transactions? 

A. Yes, Ido, 

Q. Okay. So then, let me step back and re-ask the question. 

How is the system set up to confirm that those entries arc made 
accurately and timely? 

A. I wouldn’t be able to answer that. 

That’s not my area of expertise. 

Q. Well, you swore to this affidavit. 

A. Well - 


7 


68 




360 


Q. you swore to the truth of the fact that the history is noted in 
the record at the time of the transaction. 

How do you know that to -be true? - - - . - 


A. Because I ~I have to rely oh our system ofrecord. 

Q. Right. I agree that it’s set up for you to rely on that, but 

that’s not what this says. It says you’re swearing to the fact that 
that record is accurate and timely. 

A. I just would have to have confidence in my system that it is 
true and correct. 

Q. Okay. Is there any - let me go back to my hypothetical that 
I asked you, where a mortgagor has a conversation with a loan 
specialist or work-out specialist, or, whatever their title is, and 
reaches some son of payment plan. Okay*? 

A. Okay. 

Q. How is the system set up to confirm, number one, that that 
conversation is entered that day, for example, versus an employee 
taking a note and entering it a week later when they come back 
from vacation; and now is it .set up to confirm that the data is 
entered accurately, that the employee has the payment numbers and 
times of payment and method of payment entered accurately? 

A. I wouldn’t be able to answer that because that’s not in my 
unit. 

Q. As part of your unit, have you ever gone back to confirm 
how you can swear to the truth of this sentence? 

A. There arc times when I might have to review a loan as far 
as conversations, if a borrower was disputing something. There 
would be those times that I would review the notes and Uie account 
at that point. 

But in - in this particular afBdavdt, I hati no reason to go back to review anytlung. 

Deposition of MargieKwiatanowski,taken January 31, 2006 (p. 34 line 13 - p, 36 
line 20) 


69 



361 


The record in the instant case demonstrates why some minimal scrutiny (as 

otherwise sworn to in the subject Affidavits, but never actually completed by the .Affiant) would 

-be -necessary: ---■ --- — 

Q. And is it fair to say that as of November 25, 2003, the 
Jacksons were completely paid up with GMAC, according to that 
entry? 

A. I would - 1 would have to co nfirm that by looking at the 
payment history, 

Q. Well, tell me what else that entry would mean; in other 
words, why would that entry be made in the comment history if the 
payment history didn’t reflect it as true? 

A. Well, as it should, it should agree. I don’t - I’m not 
disputing that But my feeling would be I would look to sec how 
the payments were applied, to see if they were applied correctly, if 
I had a reason to review this account 

Q, Wliich you did not? 

A. That’s correct 

Q, Well, isn’t it fair to say that your affidavit indicates that tlie 
payment due Fcbruaiy 1, 2004, is the one that placed this loan in 
default, correct? 

A, • That’s correct 

Q, And that would be a payment due for December, a payment 
due for January, and a payment due for February' of '04, correct? 

A. That’s correct. 

Q, Did you ever go back to confirm whether those were the 
payments that threw this loan into default? 

A. I would only know what the due date is in the system. 


70 



362 


Q, Just based on what the foreclosure work screen says? 

A. That’s correct. 

. Q. Would you know who the person -becauseJ.want.to be 

fair, now that I have an understanding of your role in this. 

Would you know who the person would be who would be most 
familiar with the entries on the comment history that we’re going 
over right now? 

A. I don’t think I could give you a specific person, no, 

Q. Okay. If I told you that Mr. and Mrs. Jackson have 
canceled checks showing payments cashed by GMAC on January 
5'^ of ‘04 and February 14, of ‘04, you have no explanation for that; 
that’s not your role in reviewing this? 

A. That’s correct. That’s something payment research would 
handle, 

Q. Okay. With regard to whether the payments were 
accurately allotted to principal and interest as opposed to paid liom 
suspense or pay to suspense, that would not be your role? 

A. That’s correct. 

Q. Allotting the payments accurately is not your role? 

A. That’s correct. 

Deposition of Margie Kwiatauowski, taken January 31, 2006 (p. 49 line 10 - p. 51 
line 21) 

Unfortunately, while the Affidavit reflecting sworn testimony to the Court 

indicates the Affiant has conducted a complete review of the file, GM-AC’s system is designed so 

that other departments within GMAC are re.spojrsible for reviewing the data: 

Q. All right. Ms. Kwiatanowski, let me ask you this; Is there 
any reason or any way in the system that is set up within GMAC 
for the foreclosure work screen to indicate any problems or issues 
or disputes prior to the day you review it? 

A. No. 


10 


71 



363 


Q. If there are comments in the - 1 forget what we called them 

- the comment history, if there are commaits here that note, for 
example, that the borrower is having problems trying to get 
someone to resolve escrow and payment applications issues, if 
thereare-comments that say Accotmt-escrow-payinent may not be.. 
correct, sent for explanation, that type of thing, are any of those - 
or do any of those result in any sort of flags that get to the 
foreclosme work screen? 

A. If there were any reason, if there was a dispute prior to a 

loan being referred, they would put what wc call a CIT on the loan; 
that would prevent it from being referred while it was being 
researched. 

Q, Okay. And I do see that, the listing for CIT, throughout this 
history. 

What then, stops that CIT trigger and sends it on to your 
department, or stops the CIT hold and then sends it onto your 
department? 

A, I believe there's - 1 believe there’s two different CUs for 
different lengths of time to keep it on hold. 1 believe - and also it 
would fall into someone’s queue to see whether or not that should 
be removed prior to removing it; to see, for example, to see if the 
research has been completed. And if it has been and they find no 
error of GMAC’s, then they would remove that CIT and that would 
move forward to foreclosure. 

Q. Okay. Which department conducts that analysis - 

A. It would - 

Q. - is it done before it gets to your department or your unit? 
A. Yes. 

Q, Okay, How’s that get done? 

A. It would be through customer service. It would really 
depend on what the issue was as to what unit would be handling it. 


11 


72 



364 


Q, Okay. Well, for example, here we have- and I’m just summarizing this, 
and just because I think it is accurate - but there arc entries here throughout with 
regard to a dispute in how the payments are being applied; you know, one notation 
here made by a GMAGindividual that the account escrow payment may not be 
-- correctySent-for-explanalion.- . . 

How can you - or can you tell from that which unit is handling the 
review? 

A, No, I cannot. 

Q. What are the names of the units that do the reviews; you 
said there were two? 

A. Well, there’s a payment - there’s payment research. 

There’s an escrow unit if it were a dispute with taxes or insurance, 
they would need to review it For an MI issue, that area would 
review it. It would all depend on the issue - 

Q. Okay. 

A. - who would be researching it. 

Q. Is there a way to tell from the comment histories which 
units resolve the dispute? 

A. It would show by that teller number on there who the 
associate w'as, 

Q. Okay. 

A. And then you would know from there what unit they would 
come from, 

Q. And again, that gets done on the DocTrac-l’m sorry. 

A. ITieXHet. 

0. XNet? 

A. Preconversion, on the XNet, 

Q. Okay. 

A. Postconversion, we can do it right on our system. 


73 



365 


Q. Is there a review process to make sure that the conclusion is 
accurate? 

A; I wouldn’t be able to answer that.*' ' 

Deposition of Margie Kwiatanowski, taken January 31, 2006 (p. 58 line 7 - p, 61 
line 24) ■ 

(dJ swore and subscribed to the statements before a Notary. 

Finally, Ms. Kwiatanowski admitted at the deposition she did not sign the 
Affidavits in front of a notary, but that it was “our” regular practice for the Affidavits to be 
placed in a folder and .sent across the building to be signed by the notary, sometimes on another 
day: 


Q. On Ms. Holmes’ notaiy' section, do you sec there that she 
docs not fill out the name of the person who is taking the oath? 

A. I see that now, yes. 

Q. And do you see that she also does not have a notary stamp? 
A. I see that also, yes. 

Q, Are you familiar with Pennsylvania’s notary statute? 

A. I realize that they have to have a stamp to notarize. 

Q. And that both of those arc violations of Pennsylvania’s 
notary statute? 

A. I would think so, yes. 

Q. How is it that you and Ms. Holmes ended up in the same 
place at the same time for completion of the affidavit, how does 
that physically work? 

A. Weil, all documenls that we sign already sworn in, she 
would hand me personally. So she would just sign off she would 
notarize it after I signed off. 

Q. Are you two in the same room when that’s done? 


13 


74 



366 


A. Yes. 

Q, Okay. How is that physically done, is what I am asking? 

A -We-would - anything That I would sign over.to ~ anything L. 

would sign off, I would give to her to notarize. 

Q. Okay. And how -again, how is that physically done; do 
you and she meet in the same room, at the same time in the 
same place? 

A. She is in the same building. I - 1 would leave - it could 
be more than just one afOdavit in a folder and I waited for her 
to notarize. 

Q. Okay. Bui by then. I’m taking it that she notarizes it at a 
different time than you sign it? 

A. That’s correct 

Q. Okay. Is that also true for the signature on Jackson 00008? 
A. Yes, that’s correct. 

Q, And that appears to be a Brenda StaehJe? 

A. Brenda Staelile. 

Q, Staerle, S-T-A-E-R-L-E. 

A. Actually it’s S-T-A-E-H-L-E. 

Q, Okay. Thank you. 

And she does indicate that you arc the person swearing, and she 
does have her notary stamp here. But what you’re indicating is you 
signed the document - 

For example, the Amended Affidavit of Indebtedness, which is 
6 through 8 on our Bates stamp, you sign the document, you 
put it in a folder, it gets routed to Ms. Stachic and then she 
signs it at a later time? 

A. That’s correct. 

Q . Do you know if she signs it on the same day that you do? 

14 


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367 


A. Generally, yes, she would. 

Q. How do you know that, what’s the control for that? 

. -A.- --Because they would try to complete sometiiing within the. 

same dsiy; as we have our guidelines to follow and our time ftaraes 
to get it back to the processor, to supply it back to the attorney. 

Q. Okay. But there’s no doubt that she doesn’t notarize it 
- or she doesn’t witness your signing? 

She docs not witness or did not witness you placing your 
signature on Bates stamp 8; is that correct? 

A. That’s correct. 

Deposition of Margie Kwiatanowski, taken January 31, 2006 (p. 27 line 4 - p. 30 
line 8) (emphasis added) 

Clearly, the notary statutes ofboth Pennsylvania (57 P.S. 158) and Florida 
(Section 1 1 7.05, Florida Statutes) are violated by the process used by GMAC in the instant case 
fand in all other cases, given the procedure outlined by Ms. Kwiatanowski.) Violation of 
Florida’s notary statutes in the manner described {notarizing a signature if the person whose 
signature is being notarized is not in the presence of the notary at the time) constitutes 
malfeasance and misfeasance in the conduct of official duties, pursuant to Section 117.107(9), 
Florida Statutes. Under Pennsylvania law, when a notary certifies a document, the notary attests 
that the document has been executed, that the notary was confronted by the signor, that the signor 
is the person whose name is subscribed, and that the tiotaiy is verifring the date of execution. In 
Re Fi.sher . 320 B.R. 52 , at 63 (Iv.D. Penn. 2005) (emphasis added.) 

5. As referenced above, the Affidavits of Indebtedness filed by GMAC in 
furtherance of the foreclosure constitute sworn testimony to this Court in validation of the debt 
and GMAC’s right to collect the debt Unfortunately, the Affidavits are rife with falsehoods and 
misstatements; GMAC’ s system does not allow the Affiant (or her entire department, for that 

15 


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368 


matter) opportunity to review the actual history of the loan or any of the loan document, as 
the Affidavit otherwise maintains to the Court Defendants assert the filing of such false sworn 
testimony is a fraud upon this Court. 

6. It is appropriate for the trial court to dismiss an action based on fraud, 
provided that there is a blatant showing of “fraud, pretense, collusion, or other similar 
VrTongdoing,” Distefano v. State Farm Mutual Automobile hts. Co., 846 So. 2d 572, 574 (Fla. 
DCA 2003). 

7. Misrepresentations in the Affidavit are willful fraud, interfering with the 
Court’s “ability to impartially adjudicate a matter by improperly influencing the trier of fact or 
unfairly hampering the presentation of the opposing part>'’s claim or defense.’Yii. 

8. Tliis Court should dismiss the pending action with prejudice and award such otlier 
relief as the Court deems just and appropriate. 

WHEREFORE, Defendants Robert and Lillian Jackson, respectfully request this Court 
enter sanctions against Plaintiff, including entry of a Dismissal with Prejudice and such other 
relief as the Court deems just and appropriate. 

DATED at Jacksonville, Duval County, Florida, this ^ day of March, 2006. 

LAW OFFICES OF TROMBERG 
& KOWALSKI 





L 

F/ed Frt^berg, EsquW 

:4) 


Jaings^. Kowalski, Jr., Esquire (FBN: 852740) 
Charlie V. Schmitt (FBN: 00 12803) 

4925 Beach Boulevard 
Jacksonville, FL 32207 
Telephone: (904) 396-5321 
Facsimile; (904) 396-5730 
Attorneys for Defendants 

16 


77 



369 


Exhibit 7 



370 


IN THE CIRCUIT COURT OF THE FOURTH 
JUDICIAL CIRCUIT, IN AND FOR DUVAL 
COUNTY, FLORIDA 

CASE NUMBER; r6-2004-CA-4835-XXXX-MA 

DIVISION: CV-E 


TCIF RH02, LLC, 

Plaintiff, 

V. 

MARTIN L. LEIBOVvTTZ, AS TRUSTEE, 
etc., cl al., 

Defendants. 


j THl'l 


THIS 

•“JTTR 
1 HATER 


/ 


ORDER GRANTING DEFENDANTS^ MOTION FOR SANCTIONS 
This cause came before the Court on April 5, 2006 on Defendants Robert Jackson and Lillian 
Jackson’s Motion for Sanctions for Fraud Upon the Court. The Court has reviewed the pleadings, 
considered arguments of counsel, and is otherwise fully advised in the premises. 

The Court finds Plaintiff, through its servicing entity, GMAC Mortgage Corporation, 
submitted fal.se testimony to the Court in the form of Affidavits of Indebtedness signed and 
subscribed by Margie Kwiatanowski, a “Limited Signing Officer’' with GMAC Mortgage 
Corporation. The submission of the false .Affidavits was pursuant to protocols and procedures 
wherein Ms. Kwiatanowski, as Limited Signing Officer, would attest to review of the relevant loan 
docuinent.s, the Complaint, and the loan payment records, when in fact (as sworn to by Ms. 
Kwiatanowski in her deposition) she neither reviewed the referenced records nor w’as familiar with 
the manner in which the records were created by GMAC on behalf of Plaintiff. In her deposition, 
Ms. Kwiatanowski admitted none of the Affidavits w'ere signed before a Notary, and that Affidavits 
of the sort filed by Plaintiff would be signed and then left in a folder, to be notarized at a different 


79 



371 


!ime. The admissions by Ms. Kudatanovi'ski in her deposition directly contradict the sworn 
testimony to the Court in the form of the referaiced Affidavits, both as to the substance of the 
Affidavits and with regard to whether the Affidavits were sworn to before a notary. 

The Court recognizes the statements made by Plaintiff’s counsel at the hearing to the effect 
that the procedures in place at GMAC w'ith regard to servicing of this Plaintiffs loans were being 
corrected. The Court finds the submission of false testimony to the Courr in the mamter described 
docs not rise to the level required in order for this Court to dismiss the action. Cox v. Burke. 706 
So.2d 43 (Fla. 5'^ DCA 1998.) The Court wll not condone Plaintiffs actions in filing false 
testimony, however, and the Court has both the inherent authority to sanction Plaintiffs actions, 
based upon the findings set forth above, and finds sanctions to be appropriate. It is therefore: 


ORDERED AND ADJUDGED: 

1. Defendants’ Motion for Sanctions for Fraud Upon the Court is GRANTED. 

2. The subject Affidavits as completed by Ms. Kwiatanowski are and same he stricken. 

3. The Court orders Plaintiff to pay Defendants’ attorneys’ fees and costs for the efforts 

related to the taking of Ms. Kwiatanowski’s deposition. Based upon a review of the record and the 
Affidavit filed by Defendants’ counsel, the Court finds a reasonable .sanction to be 3 ^ hours of 
attorney’s time and further finds a reasonable, local hourly rate to be $250.00, and further awards 
costs in the amount Therefore, the Plaintiff, TCIF RE02, LLC, Inc. shall forward to 

defense counsel payment of $ « lO in sanctions for the reasons set forth above within 

the date of this Order. 

4. Counsel for Plaintiff shall file with the Court GM/VC's written explanation and 


confirmation, on behalf of Plaintiff, that GMAC’s policies and procedures wdth regard to the 


servicing of all of this Plaintiffs loans w'ithin the State of Florida have been modified, in accord wrth 

2 


80 



372 


representations made by counsel to the Court that such modifications were being made, to confirm 


the affidavits filed m future foreclosi^e_actions in Florida accurately memorialize the actions and 
conduct of the affiants. The written confirmation of policy changes, and an explanation for the 

policies now in place, shall be filed with the Court within days of the date of this 

Order. 


DOME AND ORDERED, in Chambers, at Jacksonville, Duval County. Florida, this 
day of Mav, 2006 , 

i-h 0 1 


Circuit CouftJuage ^ 


Copies to: James A. Kowalski, Jr., Esquire 

Roy A. Diaz, Esquire 


3 


SfATE OF fLOUlOA 


OUVAl OC'JPiU 
I, THE 

rioriila, 00 Htr.i-- *-• 

in tSw olfitB oi tr.. U-o 
HITHESS my 
JatltswuiiHn. >•“ 



SI 



373 


Exhibit 8 


82 



374 


IN THE CIRCUIT COURT FOR DUVAL 
COUNTY, FLORIDA. CIVIL DmSION 

CASENO. 162004CA004835XXXXMA , 

TCIF RE02, LLC. 

Plaintiff, 

VS. 

MAR'l'IN L. LHIBO WITZ, AS TRUSTEE UNDER THE 
JACKSON FAMILY LAND TRUST DATED NOATBMBER 
18, 2002; ROBERT L, JACKSON; LILLIAN M. JACKSON; 
WnJJAM W. MASSEY, JH; STATE OF FLORIDA 
DEPARTMEN'L OF REVENUE; UNKNOWN FENANT 
NO. 1; UNKNOWT4 TENANT NO. 2, et. al., 



THIS INSTRUMENT 
IN COMPUTER 
J.T. 


Defendants. 


/ 


PLAINTIFF’S NOTICE OF COMPLIANCE WITH T I HS COURT’ S 
ORDER DATED MAY L 2006 

COMES NOW, the Plainliff, TC1FRE02, LLC.. by and Utrough its urujeisigned counsel, and 
files this Notice of Compliance with this Court’s Order dated May 1 , 2006, and states that The Plaratiff 
has forwarded a check to opposing counsel as required pursuant to paragraph 3 of said Order, and has 
simultaneously herewith submitted the Directive to the Court, as required pursuant to paragraph 4 , 
CERTIFICATE OF SERVICE 

T HEREBY CERTIFY that a true and correct copy of (he foregoing Notice of Compliance has 
been sent via U.S. Mail this day of June, 2006 to al! parties on die attached Service List. 


SMITH, HLATl’ & DIAZ, P.A. 

AUomeys for Plaintiff 

2691 East Oakland Park Boulevard, Suite 303 
FofTtlUudeiUik, Florida 33306 
lileph®ne: (9M^64-0071 
FirsirtJle; (954) 5^-9252 


RUY A. DIAZ, 

Florida Har No . 767700 


HAi:i.!HNTV; ur compliance wiihcouil oidei 5-l-06.w.-i)d 


83 



375 


Smith, 
Hiatt & 
Diaz, P.A. 


y'ia Overnight UPS 


2691 B. Oakland Park Blvd. 
Suite 303 

Fori Lauderdale. Florida 33306 


THIS 

INSTRUMENT 

COMPUTER 

J. THAYER 


(954) 564-0071 TdcphonL' 
(954) 564-9252 Facsimile 


Wailing Address: 

PO Box 11438 

Fort Lauderdale, Florida 33359-1436 



BERNARD NACHMAN 


The Honorable Bernard Nachman 
Duval County Courlhousc 
330 E. Bay Street, Room 202 
Jacksonville, FL 32202- 

RE: TCIF RB02, LLC v. MARTIN LEIBOWITZ, as Trustee, ct al. 

Case No. 162004CA004g35XXXXMA 

cv^e Vri: 

Dear Judge Nachman: 





Enclosed with this con espondcnce is a courtasy copy of the Plaintiff s Notice of Compliance 
with this Court’s Order dated May 1,2006, and tlie original signed Directive from GMAC regarding its 
policies on Affidavits being filed with the court in connection wdth mortgage foreclosure cases. 


Thank you for your consideration. 


i«spect&lly submitted. 
SMITH, nJATT A; DIAZ, P.A. 





Roy A. Diaz 
For the Firm 


Enclosures 


cenJames A. Kowahki, Jr.. Hstj 


84 


aJiTO WiSt'3jiu90.+T9OHniJ 




376 


. A POLICT DIRECTS FROM TOE 

DOCUMENT SIGNATURE PRACTICES 

The Legal Staff and its retained outside counsel present evidence to the courts in probably 
all jurisdictions. J'his evidence takes the form of written documentation signed by authorized 
corporate representatives. Some of these doeuments are notarized either as a simple notarial 
certificate and others notarized as sworn instruments before the notary. The following directives 
make not only good business sense but are commanded by statute. 'Ihus, besides financial impact 
in the cases w'c handle, the signing process may invoke sanctions by a court. It is the integrity of 
our cases that is at .stake and we cannot afford anything less than full accuracy, 

1. Any signatory in behalf of the corporation must read and fully understand the instrument 
that is being signed. Do not sign unless you have that comfort level. 

2. .^Uiy signatory in behalf of the corporation must be properly authorized by the corporation. 
Wfiren in doubt, consult with your manager or the Legal Staff for guidance. 

3, Do not sign verifications on court pleading documents unless you have independently 
reviewed and checked the facts. 

4. Sign instruments only in the presence of the witnessing notary public. 

5, If the text of the notarial certificate contains an oath (e.g. “Subscribed and .sworn to before 
me. . .” or .similar words) thenotaiy must affirmatively say to the signer, “Do you so 
swear?”. 

6, Pre-signing notarial certificates before tlie signer are prohibited by law everywhere. 


85 



CERTIFICATION 


The undersigned certifies that as of June 1, 2006, the attached Policy Directive on 
Document Signature Procedure has been distributed to the associate general counsel and 
associate counsel of the respective business units of G^LA.C Mortgage Corporation for 
distribution to authorized signatories within the- enterprise. This Policy Directive is a 
reaffirmation of existing procedures hicoiporating tlie statutory' mandates to notaries 
public of the respective residence states of such notaries public. 

June 6, 2006 

James J. Barden 
Associate Counsel - Legal Staff 




378 


Exhibit 9 


87 



379 


'-■aoo ^i-ucz-uv-v^uijun-oi in lju»juiih3iu n / i nuu vui :\ji ivj i aye t ei !£. 


UNITED STATES DISTRICT COURT 
DISTRICT OF MAJNE 

US BANK NATIONAL ASSOCIATION AS 
TRUSTEE FORBAFC2006-1, 

Plaintiff 

V. 

GORDON T. JAMES 

DefcndanlThu'd-Pjirty 

Plaintiff 

V. 

GMAC MOR'I'GAGE LLC and QUICKEN 
LOANS, INC. 

Third-Party Defendants 

l>LAIMTEF AND GMAC MOK I CAGE LLC^S MEMORANDUM IN OPPOSITION TO 
DEFENDAN T ’S MO I TON FOR RELIEF PURSUANT TO Fed. R. Civ. P. 56fgl 

Tlirougli liis Motion for Relief Pursuant to Fed. R. Civ. P. 56(g), Defendant attempts to 

parlay procedural defects in the execution of an affidavit into a smninary judgment ruiing in his 

favor. Defendant fails to offer, hovk'ever, a convincing argument that the affidavit in question 

was “presented in bad faith or solely for the purpose of delay*’ as required by Rule 56(g), 

Central to the determination of that issue, although almost entirely overlooked by Defendant, is 

that every fact contained in the affidavit in question material to tlie disposition of the merits of 

the case is true, Even if Defendant could clear the “bad faith” hurdle, the sanctions requested are 

disproportionate and would represent a windfall for the Defendant borrower. Rule 56(g) docs 

not support such relief in the circumslances. Defendant’s Motion should therefore be denied, 

K ACJ UAL BACKGROUND 

Defendant, Gordon T. James (“Defendant” or “James”) executed a Note and Mortgage in 
connection with a loan for $207,000.00 currently held by Plaintiff U.S. Bank National 
Association as Trustee for BAFC 2006-1 Trust (hereinafter “Plaintilf ’ or “U.S. Bank”) and 


) 

) 

) 

) 

) 

) 

) 

) 2:09-cv-00084 - .IH R 

) 

) 

) 

) 

) 

) 

) 


88 





380 


v^a.'DC v'wuuw-ftji ii i i-'uuuii ict il i i / I lieu uo; i u/ i u i oyc c. ui i ^ 

sen'iced by Third-Party Defendaut GMAC Mortgage, LLC ( “GMACM”). (Dcclaiation of Aixa 
M, ToiTes dated August 10, 2010, Exhibit 1 , at 2, 3, 4, 5.) Defendant admits that he has failed 
to make multiple monthly pajmients on this mortgage loan from 2(K)7 through the present. 
(Deposition of Gordon James, Exhibit 2, at 139-140, 198-199; Ex. 1 at 6, 8.) A.s a re.siill of 
that delinquency, Plaintiff brought thi.s action to foreclose on the subject property. 

On April 26, 2010, Plaintiff moved for suminMy judgment on its claim for foreclosure. 
The material facts establishing Defendant’s delinquency were set forth in an affidavit executed 
by Jeffrey Stephan, a limited signing officer at GMACM, submitted in support of Plaintiffs 
Motion for Sunimaiy Judgment. (“Stephan Affidavit,” Doc. 93.) 

In June of 2010, Defendant and GMACM oubchalf of U.S. Bank entered into a 
temporary loan modification agreement under the 1 lome Affordable Modification Program 
(“llAMP”), (Declaration of John Meinecke, Doc. 163-1, at^6.) In light of this modification 
agreement, Plaintiff no longer wi.shes to devote the resources necessary to pursue foreclosure at 
this time, and has moved pursuant to Fed. K. Civ. P. 41(a)(2) to dismiss voluntarily its claim for 
foreclosure. (Ihaintiffs Motion to Dismiss Complaint, Doc. 163.) 

Although Defendant may take jssne with tlic manner in which tlic Stephan Affidavit was 
executed and notarized, the sub.stancc of the affidavit is true and aimect in all respects material 
to the mciits ofPlaintiff.s claims for relief, and Defendant docs not and cannot dispute that. 
Defendant nevertheless asks this Court to set aside his own concessions and admissions, and to 
disregard established material facts, as ameans ofpunishing Plaintiff tor procedural deficiencies 
related to an affidavit. 

Specifically, Defendant through his Motion under Rule 56(g) asks this Court to enter 
summary judgment in his favor on Plaintiffs foreclosure claim, and to deny Plauitiff s and 
GMACM's Motion for Summary’ Judgment on all counterclaims and third party claims, based 

•:W190W33.a} 2 


89 



381 




upon procediiral defects in the execution and notarization of an afUdavil. Defendant has not 
offered any persuasive proof, however, that the affidavit was submitted to tlic Court in bad faith. 
Moreover, wliilc not conceding that the Stephan Affida\'it was submitted in bad faith as that term 
is used in Rule fi6(g), sanctions levied against Plaintiff, if any, should com|K)il with Llic sanctioms 
contemplated by applicable law governing affidavits offered in bad faith. Certainly, Defendant 
is not entitled to a favorable summaiy judgment ruling based solely on procedural errors that did 
not alter the substantive infonnation relied upon in this action. 

ARGUMEM 

I. Rule 56(g) sanctions against Plaintiff should be reserved for egrcgiously bad 
conduct and are unwarranted in this case. 

Defendant’s motion invokes Pule 56(g) of the Federal Rules of Civil Procedure which 
provides as follows; 

If satisfied that an affidavit under this rule is submitted in bad faith or 
solely for delay, the court must order the submitting party to pay tlie 
other party the reasonable expenses, including attorney’s fees, it ineuned 
as a result, An offending party or attorney may also be held in contempt. 

Fed.R. Civ.P. 56tg). 

While Rule 56(g) sanctions are not often at i.ssue in the federal courts, tlicrc are a few 
First Circuit cases in w'hich courts have considered sanctions for affidavits made in bad faitli. 

See e.g.. Fort HU! Builders, Inc. v. Nat'l Grange Mutual Ins. Co., 866 F.2d 1 1 (Isl Cir, 1989); 
Michael v. Liberty, 566 F.Supp,2d 10 (D. Me. 2008). In both of these ca.ses, the court 
determined that there was no bad faith uiulcr Rule 56(g) and declined to aw'ard sanctions. See 
Fort Hill Builders, 866 l.'.2d at 1 6 (finding no bad faitli when affidavit raised a weak claim of 
bias but was not frivolous); Mc/zue/, 566F.Supp.2dat 12 (finding no bad faith when affidavit 
included a factual inaccuracy but thci'e was no evidence the inaccuracy was intentional). In fact, 
the First Circuit has stated that “[t]he rare instances in which Rule 56(g) sanctions have been 
imposed, the conduct has been particularly egregious.” Fort Hill Builders, 866 F.2d at 16 (citing 


3 


90 



382 


'^cioc v-vuww“r->ji 11 I i (Oi ii i « / 


1 ciyc -r -ui ^c. 


cases from other circuits in which Rule 56(g) sanctions have been imposed for such egregious 
conduct). 

One of the feW' cases in wliich a court imposed sanctions pursuant to Rule 56(g) is Cohell 
V, Norton, 214 F.R.D. 13, 22 (D.D.C. 2003). The Co^e// court granted sanctions and held 
defcnrlants in contempt only after noting that defendants misrepresented the nature of certain 
accountings w'hich w'crc detailed and filed in a “materially misleading” affidavit. Id. at 18. The 
CohcU court took issue w'ilh the fact that the affidavit was materially misleading to find that the 
affidavit was filed in bad faith. ]d. The court concluded that in order to merit a fmding of bad 
faith, tlic conduct should be “pjurticulaily egregious” and “entirely unwarranted.” Id. at 21 
(citing Fort Hill Builders, 866 F.2d at 16). A procedural deficiency w^as not the issue in Cobetl. 
In Cohell, the bad conduct re.sulting in .sanctions w'a.s described as a “pattern of deceit by 
defendants that was demonstrated in the factual finding made .... The court [w^as] unw'illiiig to 
turn a blind eye to yet another demonstration of dcfcndanK’ misconduct tmd their willingness to 
iTiislead the Court and to misrepresent the truth whenever it suits them.” Id. at 21. 

Other courts have taken a similar approaclt and awarded sanctions only when false 
affidavits were subniitted knowingly in an effort to mislead the Conn. In Acrotube, Inc. v. .I.K. 
Fin. Group, Inc., 653 F.Supp. 470, 478 (N.D. Ga. 1987), tlie court imposed sanctions when a 
party submitted an affidavit tliat flatly contradicted the part>'’s admission in its prior amended 
answer to the complaint but declined to alter its position w'hcii confronted about the 
inconsistency. The court explained that the affiant’s testimony “was flatly at odds with facts 
indisputably within his knowledge” and W'as “an effort to mislead the Court and to delay the 
proceedings.” Id. SimWmly, in Batiicheckv. Fidelity Union Buttk, 6^^) 144, 147-148 

(D.N..T. 1988), the court imposed sanctions when a party submitted an “eleventh hour affidavit 
which clearly contradict[ed] her prior sworn testimony” in an effort to create a triable issue of 

{Wi')fH4!3 4} 4 


91 



fact to defeat summary judgment. The court noted that sanctions were appropriate because the 
affidavit was “inexplicably conb'udictory” to prior deposition testimony. Id. at 150. 

In sharp contrast to those knowingly deceitful submissions of material representations of 
fact, Plaintiff, in the instant action, submitted an affidavit that is factually sound but proccdurally 
flawed. Furthermore, Plaintiff has acknowledged the procedural deficiencies of the Stephan 
Affidavit and has submitted the subsequent declaration of Aixa Torres which confirms the 
accuracy of the material facts set forth in the Stephan Affidavit concerning Defendant’s default 
giving rise to the foreclosure action. 

Defendant contends that Plaintiff relied on the Steplian Affidavit after learning of these 
procedural flaws when it did not address those flaws in its Reply to Defendant's Opposition to 
Plaintiffs Motion for Summary Judgment. At the time Plaintiff filed its Reply, however, the 
period of lime for Mr. Stephan to read and sign the deposition Uaiiscript in which these 
procedural flaws were described had not yet expired. Mr. Stephan’s deposition took place on 
June 7, 20 1 0, in the ease of Federal National Mortgage Association v. Nicolle Bradbury 
pending in Maine Slate District Court, and Plaintiff filed its Reply (Doe. 134) on June 16, 2010. 
Plaintiff was entitled to sufficient time to investigate any potential coirections or cliu-ifications to 
Mr. Stephan’s testimony before acting to correct his affidavit.* 

Defendant has asserted that these procedural deficiencies have produced an affidavit that 
is “fLindamcntally false.” Plaintiff acknowledges that the Stephan .Affidavit contained an 
inadvertent inaccuracy concerning the Note and its endorsements, and has submitted the 
declarations of Judy Faber and Alexander Saksen to explain and correct that iuaeciiracy. That 
inadvertent inaccuracy, however, did not misrepresent any of the material facts in the foieclosmc 


^ Defendant also mentions another deposition of Mr. Stqrhan taken in a Florida action during December 
2009, however there is no suggestion that counsel representing Plainliffm this ease in Maine was aware 
of that Florida tesliraony before presenting Mr. Stephan’s affidavit in this case. 



action and docs not render the affidavit “fundamentally false.” Moreover, the inaccuracy was 
not submitted to the court knowingly or with the intent to deceive, distinguishing the present 
situation from eases in which courts have imposed sanctions under Rule 56(g). 

In the months prior to filing the above captioned foreclosure action, counsel for Plaintiff 
believed that it had obtained from GMACM a copy of the original Note as it existed at the time 
of Defendantfs default giving rise to the foreclosure action and that the original Note was 
missing tlic endorsement to U.S. Bank. (Declaration of Alexander Sakscti, dated August 1 0, 
2010, Exliibit 3, at 5). Out of a good faith belief that the Note needed to be endorsed to U-S, 
Bank prior to filing a complaint for foreclosure, Plaintiff s counsel requested that GMACM 
endorse the Note to (J.S. Bank. (Ex. 3 at T; 6). This endorsement wus made by .'effi’cy Stephan 
on September 22, 2008, w'dl before the initial Complaint in this action was tiled in state court in 
Januaiy 2009, (Ex, 3 at ‘| 6). In June of 2010, after it became clear to GMACM that Plaintiffs 
counsel had not obtained a copy of the correct original Note, GMACM sent to Plaintiffs counsel 
tlic original Note, containing all current endorsements, including the one to U.S. Bank. (Ex. 3 at 
^ 10; Declaration of Judy Faber, dated August 10, 2010, Exhibit 4, 3). llierefore, the 

Stephan endorsement proved to have been duplicative of a prior endorsement. Upon receipt of 
the correct original Note, counsel for Plaintiff promptly submitted a copy to the Court and to 
opposing counsel. (Bx. 3 at 1 1). 

The Stephan Affidavit staled that Defendant executed tlic Note with Quicken Loans, and 
that the Note was endorsed to U.S. Bank by the endorsement made by Mr. Stephan and attached 
to his affidavit. The material fact of that statement - that Uie Note was cndoiricd to the currenl 
holder U.S. flank • is and always has been true. Moreover, the niislakcn submission of the 
Stephan endorsement was not undertaken in knowing deceit. Rather, the Note endorsed by 
Mr. Stephan was submitted with a good feith belief in its authenticity as the original Note. 



385 


Defendant makes much of what he alleges to be GMACM’s failure to implement a policy 
directive relating to the signing of affidavits following sanctions imposed by a florida court in 
2006. It is worth noting that this order, entered by the Circuit Court of the Fourth Judicial 
Circuit, in and for Duval County, Florida, on its face applied to policies and procedures 
governing servicing of loans “within the State of Florida.” The relevance of this order in 
addressing a situation involving a loan in Maine several years later is significantly overstated by 
Defendant. Certainly, tire procedure followed by Mr. Stephan in executing his affidavit in this 
ease was flawed, and Plaintiff does not disptite that. The issue on Defendiuifs Rule 56(g) 
Motion, however, is whether the affidavit w'as “submitted in bad faitb or solely for delay.” Fed. 
K. Civ. P. 56(g). With that assertion, Plaintiff very much takes issue. Rushed and abbreviated 
procedures, however improper, are not the same as “bad faith,” particularly in the absence of any 
intentional misrepresentation of material fact. Defendant has not showm tlrnt the Stephan 
Affidavit and endorsement were submitted to this Court in bad faith. There is simply no basis 
for a fmding of bad faith in this case under Rule 56(g). 

II. Even if Plaintiffs conduct coustitutes “bad faith,” it docs not warrant such an 
extreme sanctioii as favorable rulings for Defendant on summary judgment 
coDceraiag all pending claims. 

The court’s discretion to impose sanctions for a party’s failure to comply with the rules of 
civil proccdLU'c is not without limits and guideline.s. Young v. Gordon, 330 F.3d 76, 81 (1st Cir. 
2003), As Defendant himself pointed out, it is incumbent upon tlie court to “fit the punishment 
to the seventy and circumstances of the violation” when detennining what, if any, sanctions are 
to be levied against a party. Id. 

Defendant’s request for summary judgment can be likened to a request for dismissal on 
the merits. The drastic sanction of dismissal is rcsciwcd for those extreme cases in w'hich “a 
party has engaged deliberately in deceptive practices that undermine the integrit)' of judicial 

iw,vm4n4) 7 


94 



386 


proceedings because courts have inherent power to dismiss an action when a paity has willfully 
deceived the court and engaged in conduct utterly inconsistent with the orderly administration of 
justice.” Gilbert V. Bloimt, Inc., 2006 3081384, at *4 (D. Me. Oct. 27, 2006) (citing Menz v. 

New Holland N. Am., Inc., 440 F,3d 1002, 1006 (8th Cir. 2006)). 

While Plaintiff acknowledges that it failed to comport with the standards for a properly 
executed and notarized affidavit, such action was not deceptive in nature concerning the merits 
of the litigation and certainly is not “utterly inconsistent with the orderly administration of 
justice.” Id. In fact, Plaintiffhas filed the declarations of Aixa Torres, Judy Faber, and 
Alexander Saksen to ensure that the record before the court is factually and proccdurally sound. 
Therefore, the integrity of this court is not undermined by the proccdurally defective affidavit. 
Moreover, the material facts contained in the affidavit aiu true and the fact that tlic endorsement 
to U.S, Bank was accomplished by an endorsement other than the one Plaintiffs counsel initially 
believed to he effective does not change those material facts. Indeed, Defendant’s primary 
complaint about the pfoccdurally defective affidavit - that the affiant did not have personal 
knowledge of the information contained in the business records attached thereto - is itself 
immaterial because Mr. Stephan’s affidavit was based on his knowledge of business records, not 
his personal knowledge of the events. 

Rule 56(g) expressly contemplates only money damages as the sole sanction for 
submission of an affidavit in bad faith. Trial courts have a comprehensive ai'senal of civil 
procedure rules to protect the court from fraud and abuse. Chambers v. NASCO, Inc., 501 U.S. 
32, 62, (1991) (Scalia, J., dissenting). Pursu;iutto Rule 56(g), a tiial c.ourt cun punish contempt 
of its authoiity by “awardj ingj expenses and/'or contempt damages when a party presents an 
affidavit in a suininaiy judgment motion in bad faith or for the purpose of delay.” Chambers, 

501 U.S. at 62 (Scalia, J., dissenting). In other words, a finding of contempt as a result of a bad 

{Wl')(m33.4} o 


95 



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faith affidavit is punishable with an award of expenses and. fees or other monetary award, not 
.summary judgment for ihc opposing party. ITiis is especially true in the instant action where 
there is no fraud and the alleged sanctionable action amounts to a procedural deficiency. 

Additionally, Defendant ask.s this court to permit it to conduct further discoveiy into the 
Stephan Affidavit and endorsement. Iliis request not only exceeds the bounds of any reasonable 
sanction, but it is a pointlc.ss fishing expedition because Plaintiff has admitted the deficiencies in 
the Stephan Affidavit and is no longer relying on it in any respect. Plaintiff, through its Motion 
to Stay, offered to allow additional discovery of the true original Note which former Plaintiff s 
counsel discovered and presented to the Court only recently, but Defendant, apparently satisfied 
with the authenticity of that original Note after inspecting it, declined that invitation by opposing 
Plaintiffs Motion to Stay. It is not rea.sonablc for Defendant to request at the same time 
discovery not reasonably calculated to produce facts relevant to the is.sues remaining in this case. 

Alternatively, Defendant asks this Conn to conduct its own inquiry into the role of 
Plaintiffs counsel and GMACM with regard to the filing of the Stephan Affidavit, While a 
court certainly has the power to conduct an independent investigation, Uicre is no fraud here that 
would warrant such an inquiry. Chambers, 501 U.S. at 44 (oiling Universal Oil Products Co. v, 
Root Refining Co., 328 U.S. 575, 580 (1946)). As stated above, the material facts contained in 
the Stephan Affidavit are true in substance, and the sole factual error concerning tlic 
endorsement to U.S. Bank was inadvertent and does not affect the underlying fact that at the time 
the Complaint was filed, U.S. Bank was the holder of the Note. There simply is no element of 
fraudulent intent or malice ilcinonslrated in Plaintiffs actions, Jind certainly no complicit 
behavior on the part of Plaintiffs counsel, that would warrant such ati cxtraordinaiy inquiry 
action. 


9 


96 



388 


Summary judgment for Defendant on the foreclosure claim and a favorable ruling for 
Defendant on his opposition to PlainlifTs and GMACM’s Motion for Summaiy’ Judgment 
concerning all counterclaims and third party claims would result in a windfall to Defendant. 
Defendant was contractually obligated to m^e payments pursuant to his mortgage and he failed 
to do so, resulting in the instant foreclosure action. Plaintiff was and is contractually entitled to 
foreclose on the subject mortgage, and Plaintiffs recent request to dismiss the Complaint does 
not change that fact. The procedurally defective affidavit docs not in any way alter the material 
facts proving Defendant’s delinquency and Defendant fails to and cannot identity any prejudice 
experienced as a result of the procedurally defective affidavit. Moreover, that affidavit has 
absolutely notliing to do with any of Defendant’s counterclaims. Plaintiff maintains that there is 
not die requisite “bad faith” on its part to waiiant sanctions, but in the event this court determines 
nevertheless tliat sanctions arc warranted, those sanctions should address actual prejudice to the 
Defendant resulting from Plaintiffs conduct without creating a windfall for Defendant, 
C0NCLUS10^ 

Plaintiff concedes that the Affidavit of Jeffery Stephan was procedurally flawed in its 
execution and notarization, however the underlying material factual substance of the Stephan 
Affidavit remains accurate. The inquiry requested by Defendant is unwarranted because tlic 
defective affidavit was not fimidulent or malicious, and is no longer relied on by Plaintiff, 

Neither were Plaintiffs counsel and GMACM complicit in any bad conduct as alleged. 
PurthennoTe, Defendant’s reque.st for summary judgment as a sanction for a contempt finding 
would result in a windfall to Defendant. Delendant admittedly defaulted on his mortgage 
obligations and should not now be allowed to rely on a procedural deficiency to negate liis own 
wrongdoing and obtain a windfall. 


iwiyuiw ^.| 


10 


97 



389 


Dated at Portland, Maine this the 10“' day of August, 2010. 


/s/ John J. Aromando 

John J. Aromaido 
Michelle Y. Bush 
PIERCK ATWOOD, LLP 
One Monument Square 
Portland, ME 04101 
207-791-1100 

iaromando@Dierceatvvaod.coin 

nibush@pierccatwood-coin 

Attorneys for Plaintiff U.S. Bank and Third Party 
Defendant CM AC Mortf'age LLC 




11 


98 



CERTIFICATE OF SERVICE 


I hereby certify that on August 10, 2010, 1 electronically filed the foregoing document 

entitled Memorandum in Opposition to Defendant’s Motion for Relief Pursuant to Fed. R. Civ. 

P. 56(g) with the Clerk of Court using the CM/HCF system which will send the notification of 

such filling to tlie following: 

Andrea I3opp Stark, Esq. 

Matthew J. Williams, Esq. 

Stephen Y. Ilodsdon, Esq. 

Pamela W. Waite, Esq. 

Thomas A. Cox, Esq. 


Dated: August 10, 2010 


/s' lohn J. Aromaudo 
lolin J. Aromando 


PIERCE ATWOOD, LLP 
One Monument Square 
Portland, ME 04101 
207-791-1100 

Attuntey Jar PbintiJJ U.S. Bank and Third Party 
Defendant GMAC Mortgage LLC 


(Wl'>01433.4) 


12 



391 


Exhibit 10 


100 



392 



Everything Clevelend 


Eastlake couple foreclosed upon three times, despite never 
missing a payment 

Publishsd: Sunday, October 17, 2010, t>:00 AM Updated: Sunday, October 17, 2010, 8;06 AM 

H Teresa Dixon Murray, The Plain Dealer 



Chuck Crow, The Plain Dealer 

Michael and Pamella Negrea have been foreclosed on three times and have battled GMAC for years. 

EASTLAKE, Ohio -- The first time Michael and Pamella Negrea were foreclosed upon in 2001, the suit was 
thrown out of court. They had never even made a late payment. 

That didn't stop GMAC Mortgage. 

In 2005, two years after the case was dismissed, GMAC filed for foreclosure again. This time, the Negreas 
sued for breach of contract, fraud and unfair debt collection. They won more than $217,000, and the 
foreclosure was thrown out again. 

And still that didn't stop GMAC. 


1 of 4 


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asciaxe coiipie loreciuseo dfioii ciircc liidcs, uespjic ucvci 


The mortgage company now has foreclosed again, just as GMAC sits at the heart of a national foreclosure 
scandal. The company has suspended foreclosures in 23 states, and is reviewing cases m all 50 states, over 
revelations of possibly fraudulent documents, and several other banks have followed suit. 

"It's like a foreclosure machine," the Negreas' attorney, Stephen Futterer of Willoughby, said of GMAC. "It 
won't stop." 

The Negreas' case reveals the inner workings and the depth of the troubles facing the mortgage industry, 
which seems to have blindly shoved through thousands of foreclosures without even reading the documents. 

Michael Negrea, a Willoughby police officer for 25 years, says most people he talks with can’t even 
comprehend their tale. "You think, ‘You make your payments, and everything is fine.' You would think this 
couldn't possible happen,” 

A representative for GMAC did not return a phone call seeking comment. 

The Eastlake couple's story started in 1995, when they built their modest 2,400'square-foot colonial and 
borrowed $200,000. They refinanced in 1998 with a local mortgage company, whi^ sold the loan to Advanta 
Mortgage Corp. 

The loan was sold a year later to Nation’s Credit, then it was sold to Homecomings Financial, with the loan 
being serviced by Fairbanks Capital Corp., one of the nation's most notorious mortgage lenders, The Federal 
Trade Commission In 2003 sued Fairbanks for deceptive and illegal practices, including not posting customer 
payments, and the company agreed that year pay $40 million in damages. 

Sometime while Fairbanks was in the picture for the Negreas, two payments didn't get posted. 

"You'd call and talk to someone and they said they'd look into it," said Michael Negrea, 53. "When you called 
and asked for the person you talked to, they no longer worked for the company. You’d leave a message for a 
supervisor, and they'd never cal! you back." 

A foreclosure was filed in 2001 on behalf of Homecomings, which owned the loan, Right around the same 
time, the servicing was transferred from Fairbanks to GMAC. Once Homecomings said the Negreas were in 
foreclosure, the company wouldn't accept their monthly payments. So the couple simply put the money in 
the bank. 

When attorneys for both sides sat down in 2003, they worked out a written settlemenT. Ail penalties and 
interest would be wiped out and the Negreas would pay the actual payments owed. Homecomings/GMAC 
also would erase the foreclosure and negative information from the Negreas' credit files. (The Negreas say 
that still has never happened.} The Negreas started making normal payments again in early 2004. 


of 4 


10/19/10 8:43 AM 


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i-.asciajcc coupic rorecioieci upon inrc-c- Limes, ucspiic iicvci 


By June, GMAC sent another default letter. The couple had copies of their canceled checks and even the 
return receipts from the Postal Service showing when the payments had been sent and received. All 
payments had been on time, and GMAC apologized in July for the mistake. 

In October, they got another default letter. And they got a letter saying that GMAC thought their $500 
homeowners' insurance premium hadn't been paid, so they were imposing a new policy at $3,200. In truth, 
their insurance hadn’t lapsed. They'd had the same company since buying the home. 

GMAC again sent apology letters. 

After the couple sent their December payment, it wasn't cashed. The next month, in January 2005, GMAC 
again filed for foreclosure and wouldn't back down. 

"They pretty much treated us like criminals." Michael Negrea said. 

Futterer, who has been their attorney in the case since 2003, filed a counter claim for breach of contract, 
fraud and violating debt collection laws. 

The Negreas insisted on going to trial. As the evidence unfolded, Michael Negrea said, "you could hear some 
of the people on the jury saying, 'Oh my gosh.' " 

It turned out that GMAC had applied their payments to the bogus penalties that had been forgiven in court 
proceedings back in 2003, as well as to payments that had already been posted. 

Futterer asked for a large enough award from GMAC to wipe out their roughly $200,00 mortgage forever. By 
the time they got the $217,244 settlement more than three years later -- in 2009 •• GMAC had again added 
on more than $50,000 worth of fees. 

So why wouldn't they refinance the balance with a more reputable bank? It is because they still had two 
foreclosures on their credit records, along with dozens of erroneous late payments. "They screwed up our 
credit so bad we can't get any kind of loan," said Pamelia Negrea, 57. 

But GMAC wasn't done. 

In 200S, the couple got a statement from GMAC demanding payment for its attorneys in the second 
foreclosure case — the one in which GMAC lost the counterclaim. "How can you ask for legal fees when you 
paid our legal fees?" Michael Negrea asked. 

During the last few years, GMAC has repeatedly accused the Negreas of not having homeowners' insurance 
and insisted on making monthly home inspections, charging $700 or more for each one. GMAC told them the 

3of4 10/19/10 8:43 AM 


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liasfiaKCCOupic lorccmscG upon uiiui; uiuc^. utspiitucvci iiii.-»... ■— i 

inspections were to make sure they stiK lived there. Michael Negrea considered them harassment. 

The couple had been making normal payments last year when GMAC again stopped cashing them, saying 
they owed a lump sum of nearly $310,000 plus attorneys’ fees on their $208,000 mortgage. 

In August 2009, GMAC/Homecomings filed for foreclosure again, this time in federal court instead of 
common pleas court, "We feel they're court-shopping,” Futterer said. The trial is set for January. 

The Negreas are ecstatic that GMAC's practices may finally be coming to light, even though the accusations 
so far are limited to whether GMAC gave false information about foreclosures. 

"I can't image how many people lost their houses who didn't deserve it," Michael Negrea said. 

The couple is drained from years of back and forth with GMAC. 

"I think a lot of people would have just given up," said Pamella Negrea, a graphic designer. "Nobody believes 
us, People think, 'A bank wouldn't file for foreclosure if the bank wasn't right.' " 

"People ask me, 'How do you put up with this?’ I have no choice," Michael Negrea said. "It has cost us a 
fortune. We don't make that much. But it's our home." 

© 2010 Cleveland, com. All rights reserved. 


4 uf'i 


10/19/10 8:43 AM 


104 



396 


Exhibit 11 


10 



397 


STATE OF MAJNE 
KENNEBEC, SS 


MAINE SUPERIOR COURT 
CIVIL ACTION 
DOCKET NO, 



) 

GMAC MORTGAGE, LLC £/k/a ) 

GMAC MORTGAGE CORPORATION ) 

) 

Plaintiff ) CERTIFICATION OF 

V. ) MORTGAGEE 

MARC G. BERUBE AND USA ) 

BERUBE ) 

) 

Defendants ) 

) 

and ) 

MORTGAGE ELECTRONIC ) 

REGISTRATION SYSTEMS, INC- ) 

Party in Interest 


COMMONWEALTH OF PENNSYLVANIA 
Montgomery, ss, 


Ij , depose and say as follows: 

J Jefirey 

1 , My name is Jcf&ey SiephtiA . I am a Lituitcd Sigrinag 
Liraitcd Signiug Ofiiccf 

Mortgage, LLC f/k/a GMAC Mortgage Corporation ( GMAC ), a limited liability company 


organi7ed and existing under the laws of the Stale of Delaware having a principal place 
of business in Foil Washington, Pennsylvania. GMAC has under its custody and conlTol the 


records relating to the mortgage transaction referenced below. 

2, GMAC hereby CERTIFIES, pursuant to Title 14 M.RS.A. § 6321, to the 
following: 

a. GMAC has strictly perfonhed all provisions to provide notice lo ihs 
mortgagor as mandated by 14 M.R.S.A. §6111. 



398 


Dated: 


b. The subject Mortgage, dated 1/30/2004, and recorded in the Kennebec 
County Registry' of Deeds in Book 7823, Page 75 was granted to 
Homecomings Financial Network, Inc. by Marc G. Berube and Lisa 
Berube to secure a Note dated 1/30/2004 given to Homecomings 
Financial Network, Inc. by Marc G. Berube and Lisa Berube. 

c. GMAC is the owner of the Note and .Mortgage in this matter as 
evidenced by tlie Note and Mortgage and all endorsements and 
assignments thereto. True copies of the Mortgage and Note arc 
attached as exhibits to the Complaint. 

' '' ^2010 By; 


?l 




JeSrey Stephaii 

Limllsd Signing Oihc?: 


107 



399 


Exhibit 12 


108 



400 


Go siTLiiii l it to content. 

• Home I 

• Terms and ('(>ndilions | 

• Privacy Policy 


Torcdosiirc 

Steps You Can Talce 7'oday to Protect Your Home 

Does Freddie Mac Own Your Mortgage? 

Call your servicer - Llic oigaitization to which you make your mortgage payments -- immediately 
if you are having difficulty paying your mortgage on time. The telephone number and mailing 
address of your mongage servicer should be listed on your monthly sialement. There are also a 
niiniber of or gan i z a ti ans. that may be able to help you. 

Your servicer should be able to tell you if your mongage is owned by Freddie Mac. If you wish, 
you may ccnciucl. a search using the secured look-up tool below. Please enter your information 
carefully " a spelling error or other small mistake could cause an unccrUiiii result. Abbreviations, 
typos, or including the "Street Type" in the "Street Hanie" Held can lead to incoirecl results, 

Scli'-Sei-vice Lookup 

* Indicates recpiircd fields _ 

First Name* 'Marc 1 

Last Name * Beriibe * 1 

House Number * \25A 

Street Name * Maxwell f Do not include "Street", "Avenue", "Drive", etc. 

in tins form field. 

Street Suffix Sulix 

Unit Number ; 

City' * Litchfield i 

State * ME 

Zip Code * fonnat: HilMff 

: 04 350 

Last 4 Digits of Hntcr la.st 4 digits only. 

Social Security Format: UHM 

Number* ; Why do we ask for Social Security? 

Verification * !7j By checking this box and clicking on tlie button below to submit this 

information, 1 confirm I am the owner of this property or have the 
consent of the owner to lookup this infonnatioi). 


hnps;/7ww3.frcddicniac.conr''cor]7orale/ 1 1/30/2010 



109 


401 


G o ? ;lniighi U) c{>iileni. 

• Home I 

• Terms and Condition s | 

• P rivoev Policy 



How to Gel Help whh Your Morigagc 

Yes. Our records show that Freddie i,„Hs„Haoi 
Mac is the owner of your mortgage. 

What to Do Next 

1 . For help with your mortgage, contact your lentler and Id lliem know you would like 
to pursue assistance riirough the federal Making Home Affordable program. 

(Your lender is the comptmy to which you make yoiii mortgage payments, and may also 
be referred to as a mojigage servicer.) Your lender can help you determine if you are 
eligible for the Making Home Affordable Program. 

a. Through the Making Home Affordable program, there are several options 
available to you; 

H A Home Affordable Modification to help you obtain more affordable 
mortage payincnls if you're behind in making your mortgage payments or 
believe you may be soon. 

■ .A Home Affordable Refinance to better position you for long-term 
homeownership succes.s if you have been making timely mortgage payments 
but have been unable to reJlnance due to declining properly values. 

■ A short sale or “decd-in-lieu of foreclosure'’ to transition to more 
affordable housiug if it is not realistic for you to keep your home, 

ITeddie Mac is working with our mortgage servicers (your lenders) to offer these 
.solutions lo eligible borrowers with Freddie Mac -owned inoilgagcs. Because 
i're.cidie Mac does not work directly with consumers, you will need to work with 
yow lender to determine your best foreclosure prevention oplion 

b. If you arc not eligible for the Making Home Affordable program, donT give 
up! Ask your lender about other options to make your pa.ymcnts more affordable 


1ulps://ww3.freiidiemac.coni''eorporate/fm_owncd.html 


11/30/2010 


110 


402 


Exhibit 13 


111 



403 


STATE OF MAINE MAINE DISTRICT COI JRT 

CUMBERLAND, ss, DISTRICT NINE 

DIVISION OF NORTHERN CUMBERLAND 
DOCKET NO. BRl-RE-09-65 


FEDERAL NATIONAL MORTGAGE ) 


ASSOCIATION ) 

) 

Plaintiff ) 

V. ) 

) 

NICOLLE M. BRADBURY ) 

) 

Defendant ) 


STATEMENT OF FACTS 


DEFENDANT'S MEMORANDUM 
IN OPPOSITION TO 
PLAINTIFF'S MOTION FOR 
ENTRY OF PROTECTIVE ORDER 


1 


ARGUMENT 

I. ABSENT A PROTECTIVE ORDER, THE DEFENDANT WAS ENTITLED TO 

DISSEMINATE THE STEPHAN DEPOSITION TRANSCRIPT AS SHE SAW FIT 6 

II. THE PLAINTIFF AND GMAC MORTGAGE, LLC HAVE SHOWN NO GOOD 


CAUSE FOR THE ISSUANCE OF A PROTECTIVE ORDER 7 

HI. ALL RELIEF SOUGHT BY PLAINTIFF MUST BE DENIED 9 

IV. DEFENDANT IS ENTITLED TO AN AWAIH) OF COUNSEL FEES IN 
DEFENDING AGAINST THE PROTECTIVE ORDER MOTION 10 

STATEMENT OF FACTS 


At issue in this protective order proceeding is the transcript of the deposition of Jeffer)' 
Stephan taken on June 1 , 2010, which reveals the complete falsity of Stephan's summarj- judgment 
aflidavil. It is that August 5, 2009 affidavit of Stephan that w'as the sole evidence' presented to and 
relied upon the Court in entering its Order for Partial Summary Judgment dated JEUiuEiry 27, 20 1 0. 
That Order granted PiaintiiTjudgmcnl on all issues except tis to the amount due on Ihe Defcndanf s 
note and mortgage. 

a. The Falsity of the Stephan Affidavit. 

' For the purposes of this Memorandum, the affidavit of Plaintiffs counsel in support of Plaintiffs Motion 
for Summary Judgment is ignored, as itpertains only to the attorney fees claimed by PlEiintiff 


1 


112 



404 


The Stephan deposition proves that Stephan's affidavit is a stunning series of lies. 

Stephan claims to have personal knowledge of the facts contained in the affidavit based 
upon his asserted "custody and control" of the "records relating to the mortgage tran.saction." Aff 
f 1. TTis deposition revealed that he has no custody and control of any loan records. Ir. pp 69-70.^ 
He claim.s to have access to scanned computer images of those records, Tr. 61 -62 & 69-70, but he 
does not even look at them when .signing a summary judgment affidavit, rr.61-62. Thus, when his 
affidavit asserts that he has knowledge of the facts in it "derived from my personal knowledge of 
these records"; that statement is a blatant lie. He claims to check only "the figures" in affidavits by 
comparing them to those in his computer system, thus even the implication in his affidavit that he 
has personal knowledge of those figures is false — at best those statements are hearsay based upon 
someone elsc's data entries, which he is not even competent to autlienticatc. 

The magnitude of Stephan's false claims of knowledge about any of the facts stated in his 
affidavit is revealed by his stunning admission that he docs not read summary judgment affidavits 
before signing them; 

Tr. Page 61, Line 14: 

Q. ^M■lcn you receive a summary judgment affidavit to sign, do you read every paragraph of 
it? 

A. No. 

Q. Wfiiat do you read? 

A. I look at the figures. 

Q. That’s all that you look at when you sign a summary Judgment affidavit? 

A. Yes, to ensure that the figures are accurate. 

Tr. Page 62, Line 23: 

^ A copy of the transcript of the Stephan deposition is attached to Plaintifrs nintion a.s Exhibit ,A. 

2 


113 



405 


Q. Ts it fair to say that when you sign a summary judgment affidavit, you do not know 
what information it contains other than the figures that are set forth within it? 

A. Other than the borrower's name and if I have signing authority for that entity. That \s 
correct. 

Tr. Page 54, Line 12: 

Q. When you sign a summary judgment affidavit, do you check to see if all of the 
exhibits are attached to it? 

A. No. 

Q. Wlicn you sign a summaiy judgment affidavit, do you inspect any oflhc exliibits 
attached to it. 

A. No. 

Stephan's personal know'ledge affidavit statements that "true and correct" copies ol' the note 
and mortgage are attached are not known by him to be true because he does not look at the .scanned 
images of loan documents available to him, nor docs he look at the copies of documents attached to 
his affidavit. While this statement of personal knowledge is a lie that may be harmless here, since 
Defendant admits the accuracy of those copie.s, these clear lies Illustrate the falsity of the entire 
affidavit. 

When Stephan goes on his affidavit to assert his personal knowledge of the iaet of and date 
of mailing of the alleged default notice to Defendant, the assertion that he has knowledge oi' those 
facts also is a lie because he looked at no business records to determine if the statements are true. 

And of truly disturbing importance is the fact that Stephan does not even trouble himself to 
appear before a notary to be sworn. 

Tr, p. 56, L.ine 7: 

Q. My question to you is w'hcrcdoes a summary judgment affidavit go after you sign it? 

A. After 1 sign it. it is handed back to niy staff. My staff hands it to a notary for 
notarization. The}’ send it back to the attorney network requesting any ty'pe of affidavit. 

Q, So you do not appear before the notary; is that correct? 

3 


114 



406 


A. 1 do nol. 

It is this testimony that Plaintiff and GMAC Mongage seek to hide by their motion for a 
protective order. 

b. Plaintiffs Allegations of ’’Improper Disclosure" of the Stephan Transcript. 

Plaintiff ^ and GMAC Mongage, LLC now assert that the appearance of Stephan's transcript 
on an Internet blog of a Florida foreclosure defense lawyer is evidence of improper conduct of 
Defendant's counsel. Offering no evidence whatsoever, GMAC speculates that Defendant's counsel 
sent the transcript to the Florida attorney who published it, and insinuate that it was improper for 
the transcript to be shared with other lawyers defending homeowners in foreclosure actions. Allcr 
all of the innuendo, GMAC admits that "it is irrelevant whether or not Mr. Weidner is the attorney 
to whom Mr. Cox disclosed the transcript ..." PI. Motion 2. 

c. The Alleged Harm Claimed by Plaintiff and GMAC Mortgage, LLC. 

The harm that GMAC complains of is that, allcr alleged di.ssemination of the Stephan 
transcript that revealed his and GMAC's utter contempt for the Maine judicial process, GMAC as a 
corporate entity and its employees have suffered "cmban-assmcni, annoyance, intimidation and 
oppression". They offer no affidavits and not one shred of evidence to support this absiud claim. 
The real hann or "effect" of the dissemination of the Stephan transcript that GMAC wants lliis 
Court to aid it in avoiding, is that the Iran.script has exposed the fact that judgments entered in every 


^ It is interesting to note that the Motion for Protective Order is filed on behalf ofFedera! National Mortgage 
Association and Rank of America in addition to GMAC Mortgage. One would think that taxpayer supported 
FNMA would have adverse iniere.sts to GM.^C on this issue due to tlie misconduct of GMAC in the filing of 
the Stephan summary judgment affidavit, and one is left to wonder how Bank of America has any interest 
whatsoever in the protective order proceeding, as no .such interest is identified in the Motion. Because it is 
clear that it is only the self-inlere.st of GMAC Mortgage, TJ.C that is at stake here, for the remainder of this 
memorandum tlie moving party is simply referred to as "GMAC". 


4 


115 



407 


judicial foreclosure state into which Stephan's affidavits have been sent are vulnerable to being set 
aside as having been procured by fraud. 

d. The Relief Sought by GMAC. 

GMAC seeks the following relief: 

i. A prohibition "from disseminating discovery materials for purposes 

unrelated to trial preparation, trial or settlement of this particular lawsuit". Plaintiff Motion 

1115. 

ii. Retroactive application of the order "so as to protect information already 
obtained . . Plaintiff Motion 116. It is not clear what GMAC is asking for here. 

iii. Sanctions against Defendant's counsel including an order that "Mr. Cox be 
required to reimburse Plaintiff for all fees and costs associated with filing this 
motion for protective order." Plaintiff Motion 117. 

iv. An order that "Mr. Cox should be barred from using Mr. Stephan's 
transcript in his other cases against GMACM." Plaintiff Motion 1| 17. 

e. The Facts Regarding Defendant'vS Counsel. 

Before the deposition of Jeffery Stephan began on June 7, 2010, GMAC knew that 
Defendant's counsel was representing Maine homeowners in two other pending GMAC mortgage 
foreclosure cases, because GMAC counsel here was also counsel in those cases. Similarly, it knew 
oi' his role in the Maine Attorneys Saving Homes ("MASH") program because the attorney w'ho 
sigued the complaint in this action, and a member of the firm which represented GMAC at the time 
of the Stephan deposition, has been a participant in the MASH program, has attended a training 
program put on by it, and has even received email correspondence from the undersigned counsel for 
Defendant attempting to refer a MASH foreclosure defense case to him, 


5 


116 



408 


1. ABSENT A PROTECTIVE ORDER, THE DEFENDANT WAS ENTITLED TO 
DISSEMINATE THE STEPHAN DEPOSITION TRANSCRIPT AS SHE SAW FIT. 

GMAC asserts that "(t)his dissemination of Mr. Stephan’s testimony is inconsistent with the 
Maine Rules of Civil Procedure . . ." Plaintiff Motion 1j8. The First Circuit Court of Appeals, 
dealing with the Federal equivalent of Maine's Rule 26, certainly does not see it that way, holding 
that " the Supreme Court has noted that parties have general first amendment freedoms with regard 
to information gained through discovery and that, absent a valid court order to the contrary, they are 
entitled to disseminate the information as fliey sec fit." (empha.sis in original) Public Citizen Group 
V. Uggett Group. Inc., S-fS F,2d 77,5, 780 (1st Cir. 1988), citing Seattle Time.': Co. v. Rhinehart, 467 
U.S. 20, 31-36, 81 L. Ed. 2d 17, 104 S. Cl. 2199(1984). Going on from there, the First Circuit 
adopted the reasoning of the Second Circuit Court ol Appeals, which held as follow's: 

A plain reading of the language of Rule 26(c) demonstrates that the party seeking a 
protective order has the burden of showing that good cause exists for issuance ol that 
order. It is equally apparent that Uie obverse also is true, i.e., if good cause is not 
shown, the discovery materials in question should not receive judicial protection and 
therefore would be open to the public for inspection . . Any other conclusion 
effectively would negate the good cause requirement of rule 26(c): Unless the public 
has a presumptive right of access lo discovery materials, the party seeking to protect 
the materials would have no need for a judicial order since the public would not be 
allowed lo examine the materials in any event, (empluisis added) 

Public Citizen, id. at 858 tJ.S. 789, quoting 7« re "Agent Orange" Product Liability Litigation, 821 

F.2d 1 39, 145-146 (2nd Cir,), cert, denied, 484 U.S. 953, 108 S. 344, 98 L. Ed. 370 (1987). See 

also Jepson, Inc. v. Makita Elec. Works, Ltd, 30 F.3d S54, 858 (7th Cir. 1994) f'Absent a 

protective order, parlies to a lawsuit may disseminate materials obtained during di.scovcry as they 

see fit.") 

Because, to this point, there has been no protective order in this case, no "good cause" had 
been shown for limiting dissemination of the Steplian transcript. Therefore, under the rationales ol 
the Supreme Court and the First, Second and Seventh Circuit Courts of .Appeals, there has been no 


6 


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409 


limil upon Defendanl's right to share that transcript with other lawyers dclending homeowners in 
foreclosure cases. GMAC does not cite one single Rule of Civil Procedure, one single Rule of 
Professional Conduct, one statute, and not even one single court decision that stands for its 
proposition that a part>’ is limited in disseminating pre-trial discovery materials in the absence of a 
protective order, There is no such precedent. Defendant’s Counsel's actions have not been 
"inappropriate" or "improper" in any respect. 

II. THE PLAINTIFF AND GMAC MORTGAGE, LLC HAVE SHOWN NO GOOD CALSE 
FOR THE ISSUANCE OF A I'ROTECTIVE 01H>ER. 

GMAC belatedly'* now seeks a protective order under M.R.Civ.P. 26(c). Under that Rule a 
protective order is permitted, hut only "for good cause shown." Not only has GMAC failed to show 
"good cause", it has failed to show any cause— it has provided no affidavits or other evidence to 
support its claims. 

GMAC cites only three cases to support its request for protective order. In both Seattle 
Times Co. v. Rhinehari, id., and Baker v. Buffenbarger, 2004 U.S. Dist. I.KXIS 19083 (D. N.D. Ill, 
2004), the courts considered the granting of protective orders, but only after having received 
affidavits showing the claimed "good cause". It is not possible to determine what evidence was 
pre.scnted to support the protective order under consideration in Damiano v. Sony Music, 2000 U.S. 
Dist. LEXIS 1 6670 (D. N.J. 2000). Affidavits arc required. See Easton Sports, Inc. v. Warrior 
Lacrosse. Inc., 2006 U.S. Dist. LEXIS 96358 (E.D., So. Div., Mich.) ("Wiere a business is the 
parly .seeking protection, it will have to show that disclosure would cause significant harm to its 
competitive and financial po.sition. That showing requires specific demonstrations of fact. 


* Defendant’s Counsel’s letter to counsel for GMAC dated June 4, 20 1 0 attached to Plaintiffs Motion as 
Exhibit C outlines on page two the manner in which GMAC sat on its liands before llte .lune 7, 2010 
deposition. 


7 


118 



410 


supported where possible by Affidavit and concrete examples rather than broad, conclusoiy 
allegations of potential hanii.) (emphasis added) 

The ’’good cause" standard, that must be proved by aifidavil evidence, is best enunciated in 
Cipolloncv- Liggel Group, Inc., 785 F.2d 1108 (3rdCir. 1986) where the court stated: 


. , . Rule 26(c) places the burden of persuasion on the parly seeking the protective order. 

To overcome the presumption, the party seeking the protective order must show' good 
cause by demonstrating a particular need for protection. Broad allegations of harm, 
unsubstantiated by specific examples or articulated reasoning, do not satisfy the Rule 
26(c) test. See United States v. Garrett, 571 F.2d 1323, 1326, n. 3 (5th Cir. 1978) 
(requiring "a particular and specific demonstration of fact as distinguished from 
stereotyped mid conclusoiy statements"); General Dvruimics Corp. v. Selh Mfg. Corp., 

481 F.2d 1204, 1212 (8th Cir. 1973), cert, denied, 414 U.S. 1162, 94 S. Ct. 926, 39 1. 

Ed. 2d 1/6 (1974); 8 C. Wright & A. Miller, Federal Practice and Procedure B 2035 
(1970 & Supp. 1985). Moreover, the harm must be significant, not a mere trifle. See, 
e.g., Joy V, Forth, 692 E'.2d 880, 894 (2d Cir. 1982) (refusing proteelivc order wfrere 
proponent’s only argument in its favor was the broad allegations that the disclosure of 
certain information would "injum the bank in Uie industry and local community"), cert, 
denied sub nom. Citytrust v. Joy, 460 U.S. 1051. 75 L. Ed. 2d 930. 103 S. Cl. 1498 
(1983). 

Cipollone, id., at 785 U.S. 1121. 'I'hc Seventh Circuit adds that ''(in)ost cases endorse the 
presumption of public access to discovery materials." Citizens First Nat'l Bank v. Cincmnali Ins. 
Co., 178 F.3d 943, 946 (7tli Cir. 1999). 

In Cipollone, the court was also dealing with a claim of corporate embanassmcnl of the sort 
asserted by GMAC here and made the following slalemeiits: 


. . . because release of infonnation not intended by the writer to be for public 
consumption w'ill almost alw'ays have some tendency to embarrass, an applicant for a 
protective order whose chief concern is embarrassment must demonstrate that the 
embarrassment w'ill be particularly serious. .As embarrassment is usually thought of as u 
nomnonelizable harm to individuals, it may be especially difficult for a business 
enterprise, whose primary measure of well-being is presumably moiietizablc, to argue 
for a proteelivc order on this ground. Cf. Joy v. North, supra {Citytrust t-. North, 692 
T-2d 880, 894 (2d Cir. 1982)] (a protective order wall not issue upon the broad 
allegation that disclosure will result in injury^ to reputation); to succeed, a business wall 
have to show' wdth some specificity that the embarrassment resulting from 
dissemination of the information would cause a significant harm to its competitive and 
financial po.sition. 


8 


119 



411 


Cipollone, id. at 178 F.3d al 1121. Even if the rhetoric of GMAC's counsel in his legal 
memorandum could he taken as facts stated in an afiida\dl, those statements are insufficient to 
prove the requisite "good cause", 'fhey do not show that the alleged corporate embarrassment 
to GIVlAC is "particularly serious" or that it would "cause significant hann to its competitive 
and rmancial position" as required by the court in Cipollone. Any cmbarra.ssracnt to GMAC 
comes fi-om the fact that the Stephan transcript reveals the fundanienlally dishonest and 
contemptuous summary judgment practices that GMAC engagc.s in.^ That kind of 
embarrassment is not something from which Rule 26(c) is designed to protect GMAC. 

As a result of the sharing of the Stephan transcript among foreclosure defense counsel, 
GMj\C may well face litigation in other cases challenging its sunimar>' jndgment motions and 
foreclosure judgments that are based upon Stephan alfidavils. This is entirely appropriate. The 
Ninth Circuit (citing similar holdings in the Seventh and Tenth Circuits, Uniled Nuclear Corp. v, 
Cranford Ins. Co., 905 F.2d 1424 , 1428 (10th Cir. 1990); Wilk v. Am Med. Ass'n, 635 F.2d 1295, 

1 299 (7th Cir. 1 980)) has expressly held that there shonld be a strong bias in favor of "access to 
discovery materials to meet the needs of parties engaged in collalerdl litigation. . . Allowing the 
fruits of one litigation to facilitate preparation in other case.s advanec-s the intcrest.s ofjudicial 
economy by avoiding the wasteful duplication of discovery." Foltz v. Ho, 33 1 F.3d 1 122, 1131 (9th 
Cir. 2003). 

III. ALL RELIEF SOUGHT BY PLAINTIFF MUST BE DENIED. 

Over its displeasure vvilii the sharing of the Stephan transcript with other fm-eelosure defense 
counsel, GMAC seeks to sanction Defendanfs counsel by requesting an order that he pay GMAC's 

If the Court deems Plaintiffs unsworn copies of pages from an Internet search to be admissible evidence, 
then the Court is urged to conduct its own Google search using the words "Jeffrey Stephan GMAC" . I'he 
first three pages of that search (30 entries) will reveal 5 references to the June 7, 20 1 0 transcript and most of 
the remaining 25 relating to the December 10, 2010 transcript. PlaintilT fails to prove even with its 
inadmissible evidence that it is the June 7, 2010 transcript is the cause of any claimed embarrassment, 

9 


120 



412 


fees in bringing this legally ujifounded and faclually unsupported motion. In addition, GMAC 
seeks to bar Defendant's counsel from using the Stephan transcript in any other GMAC foreclosure 
case being defended by him. This is a blatant ettort to disqualify Defendant's counsel from those 
other cases by limiting his ability to provide full professional representation to his clients in those 
eases. Because there has been nothing improper about the sharing of this transcript, there is 
absolutely no basis for the imposition of any sanction upon Defendant's counsel. 

The GMAC motion for a protective order now can be seen only as an effort by GMAC to 
retaliate against Defendant's counsel for his exposure of GMACs bad faith and contempluous 
summary judgment practice.s. The fact that GMAC supplied not one bit of legal support for its 
claim of wrongful dissemination ofthc Sicplian transcript, and not one single affidavit to support its 
motion, can lead to no other conclusion. The conclusoiy allegations of Plaintiffs counsel, even if 
they had been supported by allldavits, do not prove the requisite good cause for the issuance of a 
protective order. The motion must be denied. 

IV. DEFENDANT IS ENTl I LED TO AN AWARD OF COUNSEL FEES IN 
DEFENDING AGAINST IHE PROTECTIVE ORDER MOTION. 


Rule 26(c) by reference to M.R.Civ.P. 37(a)(4) allows for awards of expenses on protective 
order motions. The motion here is utterly unsupported as a matter of law and unproven by any 
affidavits or other evidence. It is an unjustitied effort to increase the litigation burden of the 


Defendant that requires that PlainlilT and GMAC as the moving parties be ordered to pay counsel 


fees to counsel for Defendant for the effort required to defend this motion. 


DATED: -Tuly 2, 2010 




Thoifias A. Cox, F.sq., Maine Bar No. 1 248 

Attorney for Defendant 

P.O.Boxl314 

Portland, Maine 041 04 

(207) 749-6671 


10 


121 



413 


Exhibit 14 


12 



414 


STA TE OF MAINE 
CUMBERLAND, iis. 


BRIDGTON DISTRICT COURT 
DOCKET NO. BRl-RE-09-65 


FEDERAL NATIONAL MORTGAGE ASSOC. ) 

) 

Plaintiff ) 

) 
) 

v- ) 

) 
) 
) 

NICOLLF, nRADBURY ) 

) 

Dcfendam ) 

and ) 

) 

GMAC MORTGAGE, LLC d-Va DiTech, LLC ) 

•com and BANK OF AMERICA, NA ) 


) 

Parties-in-lntcrest ) 


ORDER ON FOUR 
PENDING MOTIONS 


C-'-T 




The Court has reviewed each of the four pending motion.^ before it, as well as all 
supporting materials, including supporting affidavits and statements of material fact. The 
Court held oral argument on September 1, 2010. Those present were attorneys Tom Cox, 
Esq. and Geoffrey Lewis, Esq. for Defendant, and attorriey .lohn Aromaiido, Esq, for 
Plaintiff and Party-in*Iniercst GMAC. Attorneys Cox Jind Aroinando argued capably for 
their po.sitions. 

On the quc.stion of summary judgment, before the Court i.s Plaintiffs Renewed 
Motion for Summary Judgment, as well as Defendant’s Motion for Revision and 
Reversal of the Pailial Summar>' Judgment Order. By its motion, Plaintiff asks that the 
Court aiTinu its previously issued order of January 27, 2010 granting siiiiimary judgment 
in its favor on the Lssiic of liability, and further seeks summary judgment in its favor on 
the issue of the amounts owed. The Defendant’s motion seeks to set aside this Court's 
previous order granting partial summary judgment for Plaintiff, 

DefeiKlant urges that this Court ,sct aside its order on the ground that in ,so ruling, 
the Court relied upon the affidavit of Jeffrey Steplian, which w'as deficient under M. K, 
Civ. P, 56(e) because Mr. Stephan had signed the affidavit outside the presence of a 
notary and without reading its contents. The Plaintiff contends that the order can stand 
even putting a.side the Stephan affidavit, and in any event has sought to cure the 
irregularities in its filing by submitting apropa'ly sw'orn affidavit to support its motion. 



415 


'I'hcrc arc, however, deficiencies in Plaintiffs filii^ which arc not cured by the 
newly-submitted affidavit, namely deficiencies in its statement of material facts (SMF), 
The Law Court has made clear that in ruling on a summaiy judgment motion, Maine 
courts are “neither required nor permitted to search outside the tacts properly referenced 
in the statements of material facts See, e.^, Camden Nat'l Hank v. Peterson, 2008 
ME 85 26, 948 A.2d 1251, 1258 (emphasis added). In Chase Home Finance LLC v 

Higgins, 2009 ML 136, 985 A-2d 508, the Law Court set forth a list of those facts which 
“must be included in the mortgage holder’s statement of material facts," Id. at ^ 11, 985 
A. 2d at 511. Plaintiff was bound to abide by this mandate, because both its initial and 
renewed summary judgment motions were tiled after the June 15, 2009 effective date 
noted in Chase. See id at 1 1 n.2. 985 A.2d at 510 n. 2 (explaining th4il new statutes and 
rules will apply to summaiy judgment motions filed after their effective dates, regardless 
of when the foreclosure action was commenced, and adding; “Wc include the new 
requirements here for future reference of parties moving for summary judgment in 
residential foreclosure actions"). 

Neither Defendant’s initially-filed statement of material facts nor its revised 
statement of material facts comports with Chase. For example, the mortgage holder’s 
statement of facts must include “the existence of the mortgage, including the book and 
page number of the mortgage, and an adequate description of the mortgaged premises, 
including the street number, if any.” Id at K U, 985 A.2d at 5 1 i (citing P.L, 20(J9, eh, 
402 §§ 9, 17, effective June 1 5, 2009). Plamtifl'’s initial and subsequently filed statement 
of facts provide the book and page number, but fail to include the street address. See 
Plaintiffs SMFs at T[ 2. Failure to include the street addrc.ss is enough in itself to 
preclude the granting of summaTy judgment. See. Mortgage Elec. Registration Sys. v, 
Saunders, 2010 ME 79 f 25 (explaining that “While the book and page mimber - but not 
the mortgaged property’s address - were included in the affidavit supporting one of 
ME.RS’s original statements of material fact, facts not set forth in the parlies’ statements 
of material fiicts are not pail of the summary judgment record”). 

Plaintiff,? SMFs contain other omissions as well, it is not enough to stale, as 
Plaintiff docs, that “Demand has been made upon Defendant for payment of all amounts 
due Plamtiffs SMPsat^l 5. 14 M R.S.A. § 61 1 1 requires that a mortgagee’s default 
notice set ffirlh the mortgagor’s right to cure, and specifies tlie requisite content of such 
notices as well as the procetlures which must be followed. As the Law’ Court .stated in 
discussing compliance with the statutory written notice requirements of foreclosure, “For 
a mortgagee to legally foreclose, all steps mandated hy statute must be strictly enforced." 
Camden Nat'l Bank, 2008 ME at 21, 948 A. 2d at 1257. Plainliif.s .statenicnls of fact 
fail to set forth facts showing compliance with § 6111. Cirantiiig summaiy judgment 
despite such an omi.s.sion would contravene the Law Court's clc<ir pronounceincms on 
this i.ssue. 

Accordingly, this Court’s Partial Summary Judgment Order dated .January 27, 
2010 is hereby vacated per the request in the Defendant’s Motion for Revision and 
Reversal, and Plaintiffs Renew-ed Motion for Summary Judgment is denied. No further 
summiiry judgment motions will be heard, as the deadline for filing dispositive motions 


2 


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416 


has long passed and Plaintiff has already been given a second bile of the apple. The 
parties have twenty days to file an agreed pre-trial order so that (his matter may promptly 
be placed on the trial list in Portland. Tins file is now transferred to the Portland District 
Court for further filings and trial. 

In addition to renewing its Motion for Summary Judgment, Plaintiff has also filed 
a Motion for Entry of Protective Order pursuant to M.R. Civ. P. 26(c). This motion is 
likewise denied. 

Rule 26(c) provides that “for good cause shown” a court may enter a protective 
order “w-hich Justice requires to protect a party or person from annoyance, 
embarrassment, oppression, or undue burden or expense ....” M.R. Civ. P. 26(c). 
Plaintiff seeks a protective order “prohibiting the dissemination of discovery materials 
obtained in this case.” Plaintiffs Motion for Entry of Protective Order at 7, As grounds 
for its motion. Plaintiff points to the embarrassment GMAC and its employees have 
suffered, and vidll continue to suffer, from the posting of excerpts from Stephan’s 
deposition transcript on an Internet blog. The Court is not persuaded that lire Plaintilt has 
shown the requisite “good cause” to justify entry of a protective order in this case, iS'ee, 
e.g., Public Citizen v. Liggett Group. /«f.,,858 F.2d 775, 789 (fCir. 1988) (agreeing 
w'ith Second Circuit in noting that “the party seeking a protective order has the burden of 
showing that good cause exists exi.sts for issuance of that order.... [andj the obverse is 
also true, i.e. if good cause is not shown, the discovery materials in question should not 
receive judicial protection and therefore would he open to the public for inspection”) 
(citation omitted). 

Stephan’s deposition was taken to advance a legitimate purpose, and the 
testimony elicited has direct probative value to this dispute. Ailoniey Cox did not himself 
take action other than to share the deposition transcript with an attorney in Elorida. That 
the testimony reveals corporate practices that GMAC finds embarrassing is not enough to 
ju.stify issuance of a protective order. Turlher, Plaintiff has failed to establish tliat GMAC 
ha.s been harmed specifically as a result of the di.ssemination of the June 7, 2010 
deposition transcript, given that .similarly embarrassing deposition testimony from 
Stephan’s December 10, 2009 Florida deposition also appears on the Internet, tind will 
remain even were this Court to grant Plaintiffs motion. Accordingly, because Plaintiff 
has failed to satisfy its burden of persuasion under Rule 26(c), its Motion for Entry of 
Protective Order is denied. 

In addition to seeking the reversal of this Court’s previously granted Order for 
.Partial Summary Judgment, the Defendant has moved for sanctions pursuant to M.R. Civ. 
P. 56(g). This motion is granted in part, as explained below. 

The facts underlying Defendant’s motion are for the most part undi.spiited. 
Plaintiff docs not dispute Uiat its affiant, Jeffery Stephan, in hi.s role as limited signing 
officer for GMAC, Plainlilfs servicing agent, signed the affidavit w'hich Plaintiff 
submitted in support of its Motion for Summary Judgment without even reading it and 
without signing in the presence of a notary. These facts came into the record because the 


125 



417 


Defendant went to the time and expense of traveling to Pennsylvania to lake Stephan’s 
deposition. In that deposition, which took place on June 7, 2010, Stephan testified that he 
sign.s some 400 documents per day, and that the process he follows in signing summary 
judgment affidaviLs is consistent with GMAC’s policies and procedures, 

T]ie Court is particularly troubled by the fact that Stephan’s deposition in this case 
is not the first lime that GMAC’s bigh-volunie and careless approach to affidavit signing 
has been exposed, Stephan himself was deposed six months earlier, on December 10, 
2009, in Florida. His Florida testimony is consistent with the testimony given in this 
case; except fur some limited checking of figures, he signs .summary judgment affidavits 
without first reading them and witliout appearing before a notary. Evermore troubling, in 
addition to that Florida action, in May, 2006 another Florida court not only admonished 
GMAC, it sanctioned the Plainlifflender for GMAC’s affidavit .signing practices. As pait 
of its order, the Florida court required GIVL'\C to file a Notice of Compliance, indicating 
its commitment to modify its affidavit signing procedures to conform to proper practices, 
'the experience of this case reveals lliat, despite the Florida Court’s order, GMAC’s 
flagrant di.sregard apparently persists. Il is well past the time for such practices to end. 

Accordingly, Defendant asks that this Court impose sanction.^ pursuant to M.R. 
Civ. P. 56(g), which provides: 

Should it appear to the .satisfaction of the court at any time that any of the 
affidavits presented pursuant to tltis rule are pre.sented in bad faith or solely fur 
the purpose of delay, the court shall forthwith order the parly employing them to 
pay to the other party the amount of the reasonable cxpe.nses which the filing of 
the affidavits caused the other party to incur, including reasonable attorney’s fees, 
and any offending party or attorney may he adjudged guilty of contempt, 

Although there are no Maine Law Court cases applying it, the plain language of 
Rule 56(g) makes clear that llic Court mu.st determine, first, whetlier it appears “to the 
satisfaction of the court” that an affidavit submitted for summary judgment purposes was 
presented “in bad faith or solely for the purpose of delay.” The Law Court has defined 
“bad faith”, albeit in a diflerert context; “Bad laith ‘imports a dishonest purpose and 
implies wrongdoing or some motive of self-interest.’ Bad faith means ‘dishonesty of 
belief or purpose ....”’ Seacoaxl Hanf>ar Condo. U A.^s’n. v. Martel, 2001 ME 112^21, 
775 A.2d 1166, 1 171-72 (citing a Utah case and Black’s Law Dictionary).’ It is left to 
the Court’s di.screLion to determine whether offending conduct ri.sc.s to the level of “bad 
faitli” such Hull Rule .56(g) .sanctions are w-arranted. See, c.g.. Cobell v, Norton, 214 
F.R.D. 1.1, 20 (D.D.C. 2003) (noting tlial “as a practical matter a court has wkle 
cli.screlion in deciding what constilute.s ‘bad faith’”) (citing Wright & Milter, I'hdcnil 
Pra ctice and Froccdui'e § 2742 (3d ed. 1 998)). If a Court is satisfied that the affidavit was 


' Seacou:i( Hangar's definition of “bad faith” occurred in the context of di.scussing the 
business judgment rule, which “does not insulate directors from liability for breach of 
their fiduciary duties if they ‘acted primarily through bad failli or fraud Id. at ^ 20 
n. 1, 775 A.2dat 1171 n.l (citation omitted). 

4 


126 



submitted in bad faith, then the mandatory language of Rule 56(g) requires that the Court 
forthwith order “the party employing [the affidavit] to pay to the other party the amount 
of the reasonable expenses which the filing of the affidavits caused tlie other party to 
incur, including reasonable attorney’s fees.” ]Vl.R.Civ. P. 56(g). 

Both parties cite Fori Hill Builders, Jnc. v. National Grange Mut. Ins. Co., 866 
F.2d 1 1 (r' Cir. 1989), in which the First Circuit analyzed the cases applying the Federal 
Rule 56(g) to conclude that the matters in which sanctions were imposed involved 
“parti eulaj-ly egregious” conduct. Characterizing its misconduct as a mere “procedural 
deficiency,” Plaintiff urges the Court to find no bad faith; Defendant, on the other hand, 
argues that, on the spectnim of cgregiousjiess, the conduct at is.sue more thar, meet.s the 
standard for bad faith under the rule. 

The Court agrees wdilr Defendant, and finds to its satisfaction that the Stephan 
affidavit was submitted in bad faith. Rather than being an isolated or inadvertent instance 
of misconduct, the Court finds tliat CiMAC has persisted in its unlawful document signing 
practices long after and even in the faee of the Florida Court’s order, and that such 
conduct constitutes “bad faith” under Rule 56(g). These documents are submitted to a 
court with Uic intent that the court find a homeowmer liable to the Plaintiff for thousands 
of dollars and subject to Jbreclosure on the debtor’s residence. Filing such a document 
without significant regard for it-s accuracy, which the court in ordinary circumstances 
may never be able to Investigate or otherwise verify, is a serious and troubling matter. 
Accordingly, the Court orders Piainlifi^ to compensate Defendant’s counsel for his 
attorney’s fees and costs “which tiie filing of the Affidavit caused (himj to incur” - in 
other words, dial Plaintiff pay Defendant’s counsel for his time and expenses in preparing 
for and taking Stephan’s dcpo.sition, as well as for his time and expenses in preparing for, 
filing, and prosecuting Defendant’s Rule 56(g) motion.^ 


^ As the Florida court imposed sanctions on the Plaintiff lender for OMAC’s conduct, the 
Court likewise finds it appropriate to hold Plaintiff responsible for the conduct of its 
servicing agent, GMAC. Requiring Plaintiff to pay Defendant counsel’s attorney’s fees 
comports both with the language of Rule 56(g) (award of expenses should be ordered 
against party “employing” affidavits) as well as with principles of agency law. See. e..g., 
Dupuis V, Federal Home. Loan Mortgage Carp., 879 F. Supp. 119, 144 (D. Me. 1995) 
(holding that “[ajs a matter of agency law, it would be unfair for [1110 note and mortgage 
holder] to have tlie benefit of jthe servicing agent’s] servicing of the note and mortgage 
without also making [the nole and mortgage holder] responsible for [the servicijig 
agent’s] cxccs.ses and failures”). 

^ The Court declines to award fees for opposing Plaintiffs summary judgment or 
protective order motions, because those task,s were not “caused” by the bad faith 
affidavit. Because the Court finds its avv-ard of attorney’s fees and cosLs to be a sufficient 
sanction for Plaintiffs bad faith conduct, the Court declines to explore the issue of 
contempt in this case a.s requested by Defendant. 



419 


Defendant has ten days from the date of this order to file an aflidavil setting forth 
his time spent, usual hourly rate/ and expenses incurred in taking Stephan’s deposition 
and filing and pursuing Defendant’s Rule 56(g) motion. Plaintiffs written objection to 
Defendant’s counsel’s claimed expenses, if any, must be fled within seven days 
thereafter, and shall only address the sums claimed. The Court will thereupon issue an 
order setting forth the reasonable sum Plaintiff owes to Defendant’s counsel. 

The clerk shall docket this order by reference under Rule 79(a). 



Maine District Court 


That Defendant’s counsel is entitled to an award of attorney’s fees is not affected by the 
fact that he has labored in this case on a pro bono basis. Cf., Foster v. Mydas Assoc. , Inc., 
943 F.2d 139, 144 n.7 (I** Cir. 1991) (noting that civil rights attorneys who work pro 
bono and prevail arc usually awarded attorney’s fees under civil rights statutes). 

6 


123 



420 


Exhibit 15 



421 




NEWS LOCAL POLITICS OPINIONS SPORTS Business 


Political Econom'v 

;j^6v!i:s.rJ_ofilic<3ns;,b3Sbij$ii''PS5A->dret^<«e!^yL%2:;T.L 









Ally knew of faulty GMAC documents weeks before 
eviction moratorium 

Ally Financmt ofticiDls knew a large number of documents sobmitlcd in 
supDOrt of mortgage foreclosure proceedings were mishandled as early 
as August, but did not take aclion to slop the cviclions until last week, 
according to a Bloomberg report. 


ECONOMIC ACENDA 





All/s GMAC rnortgage unit briefed one ol its customers. Freddie Mac, on 
, Aug. 25 of the problem. Freddie Mac halted evicUons on Sept. 1. But Alty 
j did not take steps to freeze evictions and loredosurcs unB! Sept. 17, itie 
S report said. 

; In addition to selling ond servicing lls own loans. Ally liai idles the 
1 management of morlgagcstor hundreds ol other fimis. Famie Mae, the 
j nation's largest gevemmera-backed moigage firm, also uses Ally to 
! service some of ils loans. 

i Tho company has declined to comment on the liming oi sulrslance of 
! conversalions K had with Ally except to say lltal ' we were lirsi notified of 
i tlie situation and the planned foreclosure freeze by CMAC and ilien we 
I took Hie necessary steps to alert our nehvorks of Itie need to adliere to 
; that freeze." 

'■ It is the responsitKlity of servicers like Ally to pul processes in place that 
: ensure they are fulfilling this requirement, and they are accountable for 
; rectifying any issues that may arise in this regard, Fannie said, 
i Freddie Mac and Fonnie Mae. which are managed by Ihegovemirwni 
since a haNoul in2008, are responsible for guaranteeing or owning more 
I than half the $11 triSion in U.S. home mortgages. Tire U,S. Treasury 
j owns H majority-stake In Ally. 

: Correcfinri; An eart/er version of die hexdfum lor this ptnamcorTccOy 
; slated that it too* weeks tor Freadiis Mac to freeze evfcfrbris after 
; isaming the p>ifxirniork tor those proceedings tiaa teen mistiandloa. In 
■ lad, their response toohaboul a week 
• Complete coverage in The Washington Post; 

I Sept. 20: Aliy SiUiCfjiCit eviLbuiis on foreclosed homes in 23 slates 
i Sept. 21 : A single Ally employee, Jeffrey Siftplian, sL;r>o-{ nu--- in nao 
i (iucuments a month wrlhout reading them 

j Sept. 22: Fnkf- dncipncnls, forged signatures i^aoiiH fhrnd o.ci 'rfe system 
j Ttobo-siyiier' l.irtda Greoti'.s uha'Kiirm signature 
: Who is .Jel.Vey ■‘•tipivian anvw-jv? 

' Sept. 23: Mortgage Oocumonlalion problems coukJ iJteg ulht;t staie?; nnl 
included in Aliv's23-.sla(e moratorium 



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ll./27/l05:44 PM 



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Exhibit 16 


131 



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STATE OF MAINE 
Cumberland, ss 


FEDERAL NATIONAL MORTGAGE 
ASSOCIATION, 

Plaintiff 

V. 

NICOLE M. BRADBURY 

Defendant 

and 

GMAC MORTGAGE, LLC dA>/a DiTECH, 
LLC.coin and BANK OF AMERICA. NA 

Parties-in-lnlercsl 


DISTRICT COURT 
LOCATION; BRIDGTON 
E)OCKET NO. RRI-RE-09-65 

) 

) 

) 

) 

) 

) 

) PLAINTIFF’S MOTION FOR 
) ENTRY OF PROTECTIVE ORDER 
) 

) 

) 

) 

) 

) 

) 

) 


Pursuant to Rule 26(c) of the Maine Rules of Civil Procedure, Plaintiff Federal National 
Mortgage Association and Parties-in-Intcrcsl GMAC Mortgage, LLC d/b/a DiTECH, LLC.com 
and Bank of America, N. A. (collectively “PlaintifT’) move for entry of a protective order to 
prevent the use of discovery materials in this case for purposes other than to prepare for and to 
conduct discovery and trial in this action, including the general and gratuitous distribution of 
such information through the internet. In support of this Motion, Plaintiff states the following. 

factual background 

1 . This Motion is in response to the disclosure of discovery materials obtained in 
this action by Defendant’s attorney for improper purposes entirely unrelated to This action, the 
effect of which has caused einbairassnient, annoyance, oppression and intimidation ofthe 
employees of Party-in-Interest GMAC Mortgage, LLC (“GMACM”), and which threatens to 
interfere with the judicial process. The protective order requested herein is necessary to prevent 


|\Vil 


T2) 


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such conduct by Defendant’s counsel in the future, and to protect GMACM and its employees 
from fiiitlier such embarrassment, annoyance, oppression and intimidation. 

2. On June?, 2010, Thomas A. Cox, attorney for the Defendant Nicole Bradbury, 
deposed Jeffrey D. Stephan, an employee of GMACM. Much of Mr. Stephan ’s deposition 
testimony concerned GMACM’s business practices with respect to the execution of affidavits in 
foreclosure actions. A copy of the transcript from Mr. Stephan’s deposition is attached as 
Exhibit A. 

3. Prior to the deposition, on June 4, 2010, Plaintiffs coun.scl Julia Pitney sent 

Mr. Cox a letter, attached as Exhibit B, stating that Mr. Stephan’s deposition should be limited to 
Plaintiffs damages, i.e,, the outstanding balance, of (he loan, which is the only remaining i.ssue in 
the action, M.s. Pitney further warned against using Mr. Stephan’s deposition to gather 
information exceeding the scope of the issues of this action for purposes wholly luirclatcd to this 
action, {See Id). Ms. Pitney obviously had concerns going into the deposition that 
Mr. Stephan’s depo.silion te.stimuny would be used for purposes exceeding what is contemplated 
by and appropriate under the Maine Rules of Civil Procedure. Unfortunately, as discussed 
herein, Ms. Pitney’.s concerns were realized as Mr. Stephan’s deposition testimony was posted to 
at least one Internet blog before Mr. Stephan had the opportunity to review his testimony and 
before counsel for Plaintiff even received a copy of the tran.script. 

4, In response to Ms. Pitney’s June 4, 2010 correspondence. Mr. Cox assured 
Ms. Pitney that it was his "intent to conduct my.self and thi.s deposition fully in accordance with 
the Maine Rules of Professional Conduct and the Maine Rules of Civil Procedure.” (6/4/10 Cox 
Letter, attached as Exhibit C), Nowhere in his letter did Mr. Cox suggest that he would 
disseminate the deposition transcript to third parties for puqjoscs unrelated to this litigation. {See 
Id). 

(WHaS7S9.2i 

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5. Only after Ms. Pitney requested that Mr. Cox stipulate on the record that 
Mr, Stephan’s deposition would be used only in connection with this action did Mr. Cox 
acknowledge his repre-sentation of other individuals adverse to GMACM and that he may use 
Mr. Stephan’s deposition in tho.se other cases. {See 6/4/10 Pitney E-mail attached as Exhibit D; 
6/fi/l 0 Cox Letter attached as Exhibit E). Mr. Cox also admitted that in his role as Volunteer 
Program Coordinator for the Maine Attorney’s Saving Homes (“MASH”) Program, he may be 
inclined to share Mr. Stephan’s deposition with other MASH lawyers involved in other cases 
against GMACM. {See Id.). Still, Mr. Cox said nothing that would have pul Ms, Pitney on 
notice that the deposition testimony of Mr. Stephan might be disseminated in such a manner that 
it would be posted to an Internet blog spot, much less disseminated before Plaintiffs counsel or 
Mr. Stephan even had the opportunity to review the transcript. 

6, Mr. Cox has acknowledged sending the deposition tran.script to an attorney in 
florida who, in rum, posted the transcript to his or her blog spot. Mr. Cox did not reveal the 
identity of tlie Florida attorney to whom he sent tl»c deposition transcript, but Plaintiff believes 
that the transcript was sent to attorney Matthew Weidner. On June 15, 2010, Mr, Stephan’s 
deposition transcript from this case wa.s posted to Mr. Weidner’s blog spot, located at 

htlp;//maltweidnerlaw.conv'bIog/2()10/06/ncw-robo-signcr-deposition-jefrTcy-stephaa/. A copy 

of the blog, in pertinent part, is attached as F.xhibit F. The blog dubs Mr. Stephan the “New 
Robo Signer” and solicits comments from viewers.^ 


1 In Mr, Steplian’s deposition, Mr. Cox inquired as to Mr. Stephan’s piior Icstiinnny in a foreclosure 
action pending in Florida. (Deposition Transcript, pp. 57-58, Ex. A). The deixisilion to which Mr. Cox 
referred occurred on December 10, 2009, in connection with the case styled GMAC Mortgage, LLC v. 
Neu, in the Circuit Court of the Fiflceiith Judicial Circuit in and for Palm Beach, Florida, Case No. 50- 
200S-CA-040805XXX-MB. The transcript from the December 10, 2009 dqjosilion was posted by 
Flonda attorney Carol C. Asbury on her blog spot, which is located at www.4cIosurefra ud.com. which 
refers to Mr. Stephan as the “Affidavit Slave.” A copy of the blog spot, in pertinent pan, is ailached as 
Exhibit G. 

1WI8J«7W 2j 

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7. The eftecl of Mr. Cox’s dissemination of this transcript has been annoyance, 
cmban-assment, intimidation and oppression not only of GMACM and Mr. Stephan but ai.so to 
other employee.s of CiMACM who fear that their respective deposition testimonies may be also 
be distributed widely and gratuitou.sly on the internet or in some other very public fa.shion or 
olhewise used for improper purposes completely unrelated to the litigation in which the 
testimony is provided. 

8. This dissemination of Mr. Stephan’s deposition testimony is inconsistent with the 
Maine Rules of Civil Procedure, which contemplates the use of discovery material for proper 
purposes in connection with the action in which such discovery is generated, and seeks to protect 
parties and witnesses from embarrassment, annoyance, oppression and intimidation as described 
in Rule 26(c), and, as discussed below, the Court should enter a protective order prohibiting the 
further dissemination (jf Mr. Stephan’s deposition transcript and any other discovery materials 
obtained in this action. 

U. LKGAL ARGUMEN r 

9. Rule 26(c) of the Maine Rules of Civil Procedure governs protective orders. 
Specifically, Rules 26(c) provjdc.s that “[ujpon motion by a party or by the person from whom 
discovery is sought, and for good cause shown, any justice or judge of the couitin which the 
action is pending may make any order which justice requires to protect a party from annoyance, 
embarrassment, oppression, or undue burden or expense.” 

1 0. Court.s iiucrijreting Rule 26(c) of the Pederal Rules of Civil Procedure, which is in 
ail relevant respects identical to its Maine counteipart, generally contemplate broad, public 
discovery but do not pemiit the misuse of the judicial system in order to disseminate information 
that has been obtained tlirough pretrial discovery. See, e.g., Seattle 7'imcs Co. v. Rhinehart, A61 

U.S. 20, 104 S.Ct. 2199 (1984) (rejecting the plaintiffs contention that a protective order offends 

fWlB46789.2) 

4 


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the First Amendment when the order is limited to the context of pretrial civil discovery and does 
not restrict the dissemination of the information it gained from other sources). 

1 1 . For example, in Baker v. Buffenbarger, the United States District Court for the 
Noilhem District of Illinois held that the plaintiffs request for a protective order fell squarely 
within Rule 26(c) where evidence indicated that the plaintiffs attorney refused to agree to limit 
the use of defendant’s deposition transcript to the subject lawsuit and where plaintiffs altomey 
admitted his intent to disseminate the deposition transcript. 2004 WL 2124787 (N.D. 111. 

Sept. 22, 2004). hi Baker, prior to the subject depositions, defense counsel inquired as to the 
purpose of videotaping the depositions. Id. at * 1 . When the plaintiffs’ counsel responded that 
perhaps the plaintiffs would send the videotapes to the media or post the transcripts on the 
internet, defense counsel requested that the use of the transcripts and videotapes be limited to 
purposes directly related to the lawsuit. Id. The plaintiffs’ counsel declined, asserting that the 
public had a right to access the materials and that the plaintiffs were free to do as they see fit 
with any materials obtained during discovery. Id. TIic court opined that litigants do not have an 
absolute right to do whatever they choose witli discovery materials. Wliere the evidence 
indicates that a litigant intends to use discovery materials for a purpose unrelated to settlement or 
trial preparation, but in.stead to embarrass the party moving for a protective order, the moving 
parly’s request for a protective order falls squarely within Rule 26(c), Id at *2. 

1 2. Here, the sole remaining issue is Plaintiffs damages. Notwithstanding, Mr. Cox 
deposed Mr. Stephan primanly concerning GMACM’.s and Mr. Stephan’s procedures for 
executing affidavits in fotcclosurc matters. By the time that Plaintiffs counsel received a copy 
of the deposition transcript, Mr. Cox had already disseminated the transcript to an attorney in 
Florida who, Mr. Cox acknowledged, posted the transcript on the internet. Plaintiff has 
reasonable grounds for concluding that Mr. Weidner is the attorney to whom Mr. Cox disclosed 

(WIBWB9,3| 

5 


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428 


the transcript and that Mr. Weidner posted the transcript to his blog .spot for purpo.ses of 
embarrassing Mr. Stephan and GMACM. However, it is irrelevant whether or not Mr. Weidner 
is the attorney to whom Mr. Cox disclosed the transcript because one thing is clear - Mr. Cox 
obviously did not disclo.se the transcript for purposes relating to settlement or trial preparation in 
this law-suit. 

13. InDamiano v. Sony Music Entertainment, Inc., the United States District Court of 
the District of New Jersey upheld a confidentiality order entered four years earlier which 
prohibited the plaintiff from posting confidential discovery materials on various websites, 
disseminating such confidential information via e-mail and in chatrooms, and offering such 
materials for sale. 2000 WL 168908), *2 (D. KJ. Nov. 13,2000). Noting tJiat a confidentiality 
order may be granted at any stage of (he lawsuit, including settlement, so long as it is supported 
by good cause, the court held that the subject confidentiality order did not violate the plaintiffs 
First Amendment rigid to .speak about his claim with whomever he so desires so long ns the 
discovery materials were not exploited for “publicity, profit or collateral gain.” /r/. at *1 1 . 

14. Exploiting Mr, Stephan’s deposition Iraivscript is exactly what has occurred here. 
Mr. Cox has exceeded merely discussing his claims with other attorneys but, in.stead, has 
provided to at least one other attorney Mr. Stephan’s deposition (ranscripi which was 
subsequently posted on the internet for the ultimate purpose of publicity and profit for the 
posting attorney. Althougli Mr. Stephan’s deposition transcript may not be confidential, as were 
the discovery materials in the Damiano case, the transcript .still should nut be used to make a 
profit for attorneys with whom Mr. Cox coiivcrse.s. 

15. Accordingly, Plaintiff asks that the Court prohibit Defendant and her counsel 
from disseminating discovery materials for purposes unrelated to trial preparation, trial or 
settlement of this particular lawsuit, 

(WI8J61S9.2) 

6 


127 



429 


16, PlaintifT also requesls that any order by the Court be applied retroactively so as to 
protect information already obtained through discovery from being disseminated inappropriately, 

17. Furthermore, Plaintiff requests that sanctions he entered against Mr. Cox, 
Specifically, Plaintiff requests that Mr, Cox be required to reimburse Plaintiff for all fees and 
costs associated with filing this motion for protective order. As a consequence of his impioper 
conduct, Mr. Cox should be baited from using Mr. Stephan's deposition transcript in his other 
cases against GMACM. Plaintiff is aware that Mr. Cox has attached this deposition transcript to 
a brief he filed in the case captioned U.S. Bank National Association v, Ciraldo, Civil Docket 
No. RE-IO-04 pending in Maine Superior Court, Waldo County. 

III. CONCLUSION 

Despite having previously promised Plaintiff s counsel (hat he would abide by Maine’s 
Rules of Civil Procedure, Mr. Cox admittedly disclosed Mr. Stephan’s deposition transcript to an 
attorney in Florida who subsequently posted the tran.scripl on the internet. The use of the 
deposition transcript has caused undue annoyance, embarrassment and oppression to Plaintiff 
ami Mr, Stephan, not to mention other employees of GMACM who arc now reluctant to piovide 
deposition testimony for fear the testimony will be posted on vanous blog spots. For these 
reasons, Rule 26(c) wairants the entry ofa protective order proliibiting the dissemination of 
di.scovery materials obtained in this case. Plaintiff respectfully requests the Court to enter such a 
protective order which would apply to all discovery materials, including the use of Mr. Stephan’s 
deposition transcript. Plaintiff requests sucli other and additional relief that the Court deems 
appropriate. 


2| 

7 


138 



430 


Dated at Portland, Maine, this 25“ day of June, 201 0 



One Monument Square 
Portland, ME 04101 
207-79M100 


D. Bnan O'Dell, Esq. (Admitted Pro Mac Vice) 
Bradley Arant Boult Cummings LLP 
One Federal Place 
1819 Fifth Avenue North 
Birmin^am, AL 35203-2 1 1 9 

Attorneys for Plaintijf Federal National Mortgage 
Association and Parties-in-lnterest OMA C 
Mortgage. LLC d/b/a DiTech. LLC.com and Bunk of 
America. NA 


NOTICE 

Matters in opposition to this Motion pursuant to Me. R. Civ. P. 7(c) must be filed not 
later than 21 days after the filing of this motion unless another time is provided by tlic Maine 
Ru!e.s of Ci vil Procedure or by the Court. Failure to file timely opposition will be deemed a 
waiver oi all objections to the motion, which may be granted without further notice or hearing. 


(\VIR467S9 21 

8 


139 


Mr. Johnson. Thank you, Mr. Cox. Next we will hear from San- 
dra Hines. Is it Saundra or Sandra? 

Ms. Hines. Sandra. 

Mr. Johnson. Ms. Hines is a lifelong Detroit resident and a so- 
cial worker. She brings to this hearing her personal experience of 
losing her family home of 37 years to foreclosure and of being evict- 
ed from that home. Ms. Hines has turned those painful experiences 



431 


into valuable resources that she uses to assist others facing fore- 
closure. She has been a tireless advocate on other important issues 
of concern to the citizens of Detroit. 

We welcome you to the hearing, and we would like to hear your 
testimony now if you would. 

Ms. Hines. Thank you. 

Mr. Johnson. Thank you. 

TESTIMONY OF SANDRA D. HINES, FORMER HOMEOWNER, 

DETROIT, MI 

Ms. Hines. I want to first thank the honorable men and women 
here who can make a difference in our lives in America. 

I lost my family home to foreclosure and eviction. And I don’t 
know if anybody here knows anyone or has had anyone in they 
family lose they home, but it is an uprooting. We were uprooted. 

I still have a lump in my throat, hole in my chest every time I 
think about it, because my mother and father worked real hard to 
get that house. We moved into 16582 Lesure, Detroit, Michigan in 
1970. When we moved into that home we was the second Black 
family on the block. My mother and them was seeking a better way 
of life for us and a better environment. We stayed — my mother put 
a roof on that home, she put in a new furnace, she put in a hot 
water and cooler heater. She he had the porch redone, she had 
awnings put around the house. She also had before my father died 
central air conditioning added to the home. 

My mother — I mean my sister and my father was GM workers. 
My father worked for GM almost to the day he died. He contacted 
cancer from working for General Motors in those foundries that 
was spitting out asbestos and lead and everything else. 

I’m here to say that we believed in the American dream. Most 
of the people who have bought homes in America believed in the 
American dream. Now we are facing the American nightmare. 
None of us in America would have thought that the government 
would turn their back on the people and not allow the people to 
have the kind of help that they need because the banks decided 
they wanted to trick and rob people of they homes. 

Now we can sit here all day. I am a little disappointed that the 
room is not full, I don’t know, maybe this is a special committee 
and this is the only Committee that is listening to people that’s 
really trying to save their homes. But I wish that every chair was 
filled in this room so that they can understand the pain that is as- 
sociated when you lose a home of over 40 years. 

We moved 40 years of memories in the cold, snow like a day that 
we had in Detroit where it snowed all day, the ice was covered 
over. They threw us out in conditions like that. They took my 
mother’s antique furniture and they threw it over in the dumpster. 
The bailiff stood out there with his gun to let us know that he 
would take us to jail and kill us if we tried to stop him from coming 
into our house. It was the most horrible and most pitiful experience 
I have ever had in my life to lose a home that I lived in for 40 
years. 

Where do you go on Christmas now? Me and my sisters are di- 
vided. We staying in apartments when we always had a home. 
Where do you go on Easter when you don’t have a home anymore? 



432 


What can you call — what can we call home now after all of years 
that my father worked at General Motors and my mother worked 
for a neighborhood service agency, helping people all her life be- 
cause she was an investigator for JDO. 

And my mother — our house was paid for. The part that hurts me 
so much, my mother told us, my mother said, don’t remortgage the 
home. If you remortgage the home, the bank is going to steal it. 
She was telling my friends, my young friends who was first-time 
buyers who was buying homes at that time that was coming to my 
mother and didn’t understand what was going on, and I am talking 
about back in like 2004 and ’3, they didn’t know this was the be- 
ginning of foreclosure and evictions. My mother encouraged them 
and begged them, don’t remortgage your home. A couple of them 
didn’t and they have their home today because they didn’t. The 
ones that did don’t have they home, they experienced foreclosure 
and eviction just like we did. 

I just don’t know why we have to come and beg people that we 
put in office to work for us to work for us. What has happened to 
America? I mean I don’t get it. I don’t get it why you all sit here 
and make decisions over our lives and you all can’t see that if you 
throw us out of our homes we don’t have a life. Your life change. 
All of you got a home. You got money, you got health care, you got 
the best insurance that anybody can have, you probably have the 
best homes that anybody can have. Don’t you think other Ameri- 
cans want that, too? Isn’t that what America is supposed to be 
about? The land of the brave and the home of the free? The people 
worked, the people, the people have worked and built America 
what it used to be. Because America ain’t what it used to be no 
more. 

My mother used to always say, they are going to turn America 
into a third world country. Well, you just about to did it. Come to 
Detroit and look at the neighborhoods, how they have been ravaged 
by foreclosure and evictions. You ride down the street 6 and 7 
houses on one block out of maybe 20 houses, 10 on one side, 10 on 
the other side. Seven and 8 of them 10 have been shut down be- 
cause of foreclosure. I don’t know where those people are at. 

I came here to tell a story of the people. Maybe if the people tell 
the story ya’ll will get it. Because ain’t none of the rest of ya’ll been 
able to respect the other ones. I have seen the Congressmen that 
have argued on behalf of the people, they get shut down. It is like 
they not saying anything that anybody else is listening to. So we 
have to come now — and I am going to tell you, I wasn’t on the ros- 
ter to come from Detroit. Once I found out that you was having a 
hearing I asked my relatives, I asked my friends to give me money 
to come here. Just so happen it worked out. And on my way here 
I missed the first plane, I broke my glasses while I was on the 
plane. That is why I can’t read my statement. But I’m here, be- 
cause I am supposed to be here representing the American people. 
And it is not just Black people that is experiencing this, it is all 
people, all of the people in America. America is a melting pot. Peo- 
ple come here because they want help, they want to be free. They 
want to have what we said America was. And even the people that 
was born here in America, those of us who claim to be Americans, 
not only are you not helping those who have came, now you are not 



433 


helping us, the Americans. Why should people have to come here 
and tell you this when you see us, the millions and millions of peo- 
ple in foreclosure and evictions? Don’t you want to do something 
about it? Don’t you want to bring America back? It looks like a gar- 
bage dump now. Each city from each city. Everything is falling 
down, it is because people are stealing everything that ain’t nailed 
down and not doing what the people put them in office to do. 

Mr. Johnson. Ms. Hines, I want to thank you so much for your 
statement. 

Ms. Hines. I am sorry if I appear to be angry, but I am. I am 
mad at hell. And I thank you. I know my time is up. I appreciate 
everybody listening to me, but the bottom line is, and I’m going to 
close on this: Don’t listen, do something about it. 

[The prepared statement of Ms. Hines follows:] 



434 


Prepared Statement of Sandra D. Hines 


foreclosure 


House Judiciaiy Committee 

Attention: Chairman John Conyers Jr. and committee members 
Statement of Sandra D. Hines 
Submitted December 15j 2010 

Re; Foreclosed Justice; Causes and Effect of the Foreclosure Crisis -Part 11 

Honorable Congressman Conyers and Congressional Representatives; 

I would first like to take this time to thank you for the opportunity to speak on behave of 
me, and my fellow Americans that have lost their homes to foreclosure and eviction. 

I am Sandra Hines fiom Detroit Michigan, one of the hardest hit cities in the United 
States. 

Losing my family home of nearly forty years in December 2007 still leaves a whole in 
my stomach and lump in my throat. 

You cannot imagine how my family lives were changed. We were up rooted and 
displaced in a matter of months after living in a community where everyone was on a first 
name basis, 

We moved into oui' home in 1970 after my mother and father worked and saved for years 
to move us to a better neighborhood. 

When we moved to 16582 Lesure there were only two other Black families living on the 
block. 


We lived through many neighborhood changes and my pai'cnts went through many trails 
and tribulations to keep us in that house. 


They repaired the roof, put in a new water heater, had a tree removed, put in a new 
furnace, brick porch and central air condition, before they died, 



435 


I don’t know what broke my heart the most the death of my par ents or losing the house 
they died paying for and losing it to predatory lending from the crooked dealing of Wells 
Fargo Bank. 

I am so ashamed because my mother told us before she died “Do not mortgage the house 
because the bank will steal it. 

We did it anyway because the house needed many major repairs, and we felt we could 
pay the mortgage back, 

Once the house went into foreclosure we lost the house m two arrd ahalf months, 

The payment went from $588 a month to $988 a month. 

My Sister and I could not pay the $988 a month because my sister disability payments 
had been reduce from $1200 amonth to $600 amonth. 

I was not living at the home at that time and I was barely maintaining living in an 
apartment 

So m^y people got paid off our misery. My sister paid two lawyers to help us but all 
they did was rip us off, as the bank came and threw us out like dirty bathwater. 

The banks and financial institutions are profiting off of the American People, they are 
robbing us of our homes, .pride and dignity. 

We no longer can depend on the American Dream because now we have the American 
Nightmare. 


We need a declaration of a state of emergency and a moratorium on foreclosures and 
evictions to save om families, to save our country. 

America has had many chances to live out it’s creed, but greed has replaced human need, 
and now we’re headed for becoming a third world country, ! 

Congress you can turn America around and make it the home of the brave and the land of ^ 
the free, by working for the American People who elected you. 

We need a moratorium on foreclosui'e and evictions. 


Mr. Johnson. Thank you, Ms. Hines. 

Next we will hear from Ms. Fluker, is it Fluker? 

Ms. Fluker. Yes, it is. 

Mr. Johnson. And if you pull that microphone up and cut it on. 
Ms. Fluker. The light is on. 

Mr. Johnson. I don’t think it must he working. 

Ms. Fluker. Is it hotter now? 



436 


Mr. Johnson. Perhaps if you would grab one of the other micro- 
phones, that would be good. 

Ms. Fluker. Is this better? 

Mr. Johnson. Oh yeah, that is much better. 

TESTIMONY OF VANESSA FLUKER, VANESSA G. FLUKER, 
ESQUIRE, PLLC, DETROIT, MI 

Ms. Fluker. First of all, I would like to thank the Committee for 
having this opportunity to come here today to present testimony re- 
garding this very important issue. I, too, like Ms. Hines from the 
City of Detroit, Michigan, who is ranked at the top of the list, we 
are almost at the very top, in foreclosures leading to evictions be- 
cause we are a nonjudicial State. 

First, I would like to address the perspective of, the media per- 
ception has been that for some reason we have all these massive 
foreclosures because you have this multitude of people who bit off 
more than they could chew, who went into homes that just were 
exorbitant and beyond their reach. This is not true. The majority 
of people in subprime mortgages are the working poor, minorities 
and senior citizens, and that is what constitutes and makes up the 
majority of my practice. 

Unfortunately, the scenario is such that these subprime mort- 
gages were marketed and pushed disparately on the working poor, 
minorities, and senior citizens. For instance to give a real life first- 
hand perspective, my client, Ms. Hart, works every day as a legal 
assistant, mother dying of cancer, she has been fighting for 2 years 
to get a modification with Bank of America, who by the way just 
got $7 billion additionally in January of this year to do that. No 
go. They are proceeding to evictions on that matter right now. The 
only reason an eviction hasn’t occurred is because there may be 
some impropriety with the affidavits and documentation. 

My client, a senior citizen, who was diagnosed with dementia in 
2000, who was put in a pay-option ARM mortgage in 2007, who we 
are still fighting. Of course it is his family now, seeing as we have 
been fighting so long he died a week and a half ago. 

My client who has a farm in Michigan, who was put in a 
subprime residential mortgage, interest only, but now he covers his 
house and his whole farm, and they are foreclosing and they are 
trying to take the whole farm. 

Or even more egregious, my client who was in active duty in 
Iraq, serving his country, comes back, he is in foreclosure. They are 
like oh, well, too bad. We can’t work with you, we can’t modify your 
loan. 

This is just a sampling of what I deal with every day, and it is 
voluminous. 

And what makes this situation just in my opinion outrageous is 
because after, as we all know, it was the $700 billion bailout, ap- 
proximately 75 percent of these subprime mortgages now are in- 
sured or underwritten by the government. Why does that become 
so significant? Because if in fact a mortgage is underwritten or 
guaranteed by Fannie Mae or Freddie Mac, when the banks and 
lenders throw these people out in the street they get paid the full 
mortgage value. That is why it is a bonanza in Michigan. Michigan 
property values have dropped in some areas up to 70 percent. 



437 


So for instance, I have a client whose fair market value is going 
between 12,500 and $15,000. Well, the mortgage balance on the 
home, being the adjustable rate predatory mortgage is close to 
$200,000. Guess what, if they are successful, in throwing that indi- 
vidual out of their home, they don’t get the full market value, they 
get that full mortgage value. Therefore, why is there any incentive 
for any lender to work with anybody when they are being paid the 
full mortgage value? 

Now this was really brought to light in the New York Times arti- 
cle on October 18th of this year. The article is about Bank of Amer- 
ica, who is a perfect example, it is the same across the board. It 
talked about them resuming their foreclosures after the robo-sign- 
ing issue. And what is significant about that article is because on 
page 2 it talks about of the 14 million mortgages that Bank of 
America holds, Fannie Mae and Freddie Mac underwrite one-half 
of them to the tune of $2.1 trillion. Layman’s terms, if Bank of 
America forecloses on all of those underwritten loans by Fannie 
Mae and Freddie Mac, they would make $2.1 trillion. Again that 
is why my clients who sent paperwork in for modifications, 2, 3 4, 

5, 6, 7 times, I turn around as an attorney send it in 2, 3, 4, 5, 

6, 7 times, certified mail, green card receipt, we haven’t received 
the document and they are moving their house to foreclosure. That 
is why that occurs, that is why. People who are going to trial modi- 
fications, who have paid 3 months, 6 months, 9 months take their 
money. All of a sudden say, oh, by the way, after paying the trial 
modification for 9 months, you don’t modify. Next thing they know 
because we are nonjudicial they have a sheriff sale tacked to their 
door and they are the host house for the sheriff sale. 

This is just getting outrageous, and I challenge this Committee 
and Congress to do this, I believe this will be a very telling statis- 
tical aspect — and I know my time is running out. 

Fannie Mae and Freddie Mac always talks about how many 
houses they have sold, which is true, because in Detroit you can 
get a beautiful house for 10, $15,000. Someone needs to compare 
the numbers, how much money was paid to the banks for those 
mortgages versus how much money was made from the sale of 
those homes. And I can assure you for Michigan it will be an out- 
rage, because basically we are bailing out the banks in a silent 
bailout with these guaranteed mortgages and there is no incentive 
to work with the borrowers. 

Thank you. 

[The prepared statement of Ms. Fluker follows:] 



438 


Prepared Statement of Vanessa Fluker 

us HOUSE OF REPRESENTATIVES JUDICIARY COMMITTEE WRITTEN TESTIMONY 
FORECLOSED JUSTICE: CAUSES AND EFFECTS OF THE FORCLOSURE CRISIS 
DECEMBER 2, 2010 

INTRODUCTION 

There must be a true understanding the real life effects of the foreclosure mortgage crisis and the 
disingenuous nature of lenders in refusing to offer any assistance to borrowers locked into horrible 
subprime adjustable rate loans or who fall behind on their mortgages due to job loss or wage reductions. 

Today the foreclosure crisis continues to intensify. An estimated 2.8 million foreclosures are projected 
across the U.S. during 2010, with foreclosures totaling 9 million for the years 2009 to 2012. The total lost 
home-equity wealth due to foreclosures is expected to be $1 .9 trillion for the years 2009 to 2012, (Center 
for Responsible Lending, Aug. 20) 

Contrary to media hype and popular belief the average individuals affected by subprime lending are the 
poor, minorities and elderly. In my practice, which unfortunately now consists almost solely of predatory 
lending cases and foreclosure matters—the vast majority of my clients are the working class, poor, 
minorities, and senior citizens over the age of 75 years old, who initially owned their home outright until 
steered into ARMs, despite the fact they were on a fixed income, and now face foreclosure and 
homelessness. 

Several associates and myself have committed our practices to attempting to help these people and bring 
some sense of justice back into the legal process. I would like someone to truly address the foreclosure 
issues, and look at the front line stories that we see every day. My client who works every day, with a 
mother suffering from pancreatic cancer who is still fighting to stop an eviction after being denied a 
modification from Countrywide/Bank of America, which just received an additional 7 billion dollars for 
modifications in January of 20 1 0, The senior citizen with dementia since 2000, who was placed in a pay 
option ARM loan by Washington Mutual in 2007, and is now fighting in litigation with Chase for some 
type of resolution. The 79 year old man whose home is worth $12,500,00, but the predatory mortgage is 
almost $200,000.00, and Citimortgage refuses to modify or let him purchase the home at fair market 
value, but would rather foreclose and evict him and collect the full mortgage value from Fannie Mae. This 
is just a very small example of the instances I encounter every day resulting from the unjust and unreal 
rollercoaster of predatory lending, and of everyone getting assistance except for people defrauded. 


1 



439 


THE GOVERNMENT ROLE IN THE FORECLOSURE CRISIS 

What makes the foreclosure crisis is even more outrageous is the fact that the government now owns or 
backs 75% of residential mortgage loans through Fannie Mae, Freddie Mac, the FHA or Veterans 
Administration. 

Fannie Mae and Freddie Mac were formerly government-sponsored enterprises, private corporations 
chartered by the federal government to give them enhanced standing to buy or back up mortgage loans. 

However, in July 2008 Fannie Mae and Freddie Mac were taken over by the federal government due to 
massive losses they incurred as a result of the record rise in foreclosures caused by the fraudulent and 
predatory lending practices of the banks. The federal government placed Fannie Mae and Freddie Mac in 
trusteeship under the Federal Housing Finance Administration, guaranteeing up to $200 billion in federal 
tax dollars to back up their loans. That figure was raised to $400 billion, and is now uncapped. 

According to a June 3, 2009, statement by then FHFA Director James Lockhart, Fannie Mae and Freddie 
Mac own or guarantee 56 percent of single-family mortgages worth $5.4 trillion in the U.S. When 
combined with the Federal Housing Administration, the federal government backs or issues a whopping 
75 percent of the country’s mortgages. (Associated Press, Sept. 9, 2008) 

What this means is that when a borrower goes into foreclosure, the bank which made the loan gets paid 
off at the loan's full value by Fannie Mae or Freddie Mac. Tn addition, the government pays the bank to 
process the foreclosure. Then the government takes over the home, evicts the homeowner and any tenants, 
places the home on the market, and sells it at a fraction of the loan’s value. 

The difference in what the government paid the bank for the loan, and what the home sells for after 
foreclosure and eviction, is paid for by taxpayers. That arrangement amounts to a silent bailout of the 
banks. 

For example, a home several doors from where this writer lives in Detroit sold for $137,000 in 2001. The 
home was then foreclosed and the loan was taken over by Fannie Mae. The home is now being listed by 
Fannie Mae for $3 1,000. The S99,000 difference between the $130,000 still owed on the home for which 
the bank received full value, and the $3 1,000 for which Fannie Mae is selling the home, is paid for out of 
taxpayer funds. 


2 



440 


This bailout to the banks, which occurs with virtually every foreclosure, has already amounted to $145 
billion. 

While the FHFA estimated that the total cost of this bailout will be $221 to $363 billion, in 2009 the 
Congressional Budget Office estimated that Fannie Mae and Freddie Mac would require $389 billion in 
federal subsidies through 2019. (Bloomberg News, Oct. 21) 

Barclays Capital Inc. analysts put the price tag as high as $500 billion, and Sean Egan, president of Egan- 
Jones Ratings Co., estimated that the total taxpayer bailout to the banks through Fannie Mae and Freddie 
Mac will total $1 trillion. (BN, June 13) 

These figures do not include the additional hundreds of millions of dollars in federal subsidies on FHA- 
backed loans. 

Instead of using its authority to stop foreclosures and evictions based on its federalization of the mortgage 
industry, the government encourages the lenders to speedily carry out foreclosures and the government 
carries out the actual evictions. It was recently exposed that Fannie Mae and Freddie Mac are using the 
same law firms that prepared the fraudulent documents for the major banks in their processing of 
foreclosures and evictions. Fannie Mae and Freddie Mac are sanctioning loan servicers if they do not toss 
people out of their homes within a short period of time. (NYT, Aug. 22) 

Instead of the government continuing to bail out the banks and throw people out their homes, it's time for 
the President and Congress to immediately implement a two year moratorium on foreclosures, so the 9 
million families facing foreclosure by 2012 can stay in their homes and communities and property values 
can be stabilized for all Americans. 

LENDERS AND SERVICERS ACT IN BAD FAITH AND FAIL TO ASSIST BORROWERS 

The primary federal loan modification programs to help homeowners is the Making Home Affordable 
Program otherwise known as the Home Affordable Modification Program, which was adopted in 
exchange for the original $700 billion to the banks of September 2008 . 

HAMP and other programs are supposed to be mandatory for the banks. But the banks do not comply to 
help homeowners in any significant way. The government relies on the banks themselves to carry out 


3 



441 


these modifications, and the federal government and most courts have refused to enforce any sanctions for 
refusal to perfbnn them. 

With the banks knowing they will be getting paid full value on the loans after foreclosure, the banks have 
little incentive to modify loans and have sabotaged HAMP and led to the program's virtual collapse. As 
of August 2010, less than one-sixth of the 3 million homeowners who were supposed to be helped have 
received loan modifications, and the number of borrowers being offered trial modifications has drastically 
declined. (NYT, Aug. 20) 

Lenders make great media comments about assisting borrowers, but in reality make no attempts to work 
with borrowers in these outrageous loans. The very financial institutions and Servicers that signed 
Servicer Participation Contracts under the Making Home Affordable program go into Court and say the 
program is voluntary. How can it possibly be voluntary when the lenders signed a contract with Treasury 
to participate in the program, and are paid financial compensation for engaging in modification eflbrts 
pursuant to this contract? Yet the lenders and the courts refuse to enforce the mandate under the Making 
Homes Affordable Program, and borrowers continue to be foreclosed upon and evicted. The Helping 
Families Save Their Homes Save Act passed by Congress in May 2009, stated that it was the sense 
of Congress that there be a moratorium on foreclosures until the Treasury Departmeut certified 
that the Home Affordable Modification Program Is being implemented, yet lenders aud servicers 
have sabotaged the program by modifying less than one-sixth of the 3-4 million loans that were 
eligible. How come the Moratorium has not been put into place? 

Tn addition, because the lenders are economically subsidized by getting paid the full value of loans after 
foreclosure, they can afford to litigate a case for years and appeal eviction cases, instead of negotiating a 
reasonable solution. In contrast, the working class, poor, minority and elderly citizens are not able to 
afford the legal resources necessary to fight against these rich corporations. It is difficult trying to fight 
the system for justice for the working class, senior citizens, minorities and the poor, while the very 
entities that have defrauded these people are being bailed out and continue to get rich. 

Even the most recent program. Hardest Hit Homeowners, has failed to provide any relief to unemployed 
borrowers because the lender and servicer must sign up for the program. The major banks and lenders 
have refused to participate in the program. Thus in Michigan, the $500,000,000.00 eamiarked for the 
program just sits in a pot and less than 200 of the 30,000 unemployed homeowners that were supposed to 
receive assistance have actually been helped. The bottom line is trillions of dollars have been expended to 


4 



442 


“stabilize the housing market”, yet this stabilization has had very little positive impact in assisting 
borrowers who are the real victims of the subprime market and economic crisis retain home ownership, 
while the banks who caused the crisis continue to be bailed out by the taxpayers. 

THE LIFTING OF THE BANKS RECENT “FORECLOSURE MORATORIUMS” 

The lifting of the major banks’ recent short-lived “foreclosure moratoriums,” which had been instituted to 
stem the outcry over massive fraud in the processing of foreclosure documents, further demonstrates the 
necessity for a genuine two-year moratorium on foreclosures and evictions predicated on the premise that 
housing is a fundamental human right. 

For example. Bank of America on October 1 8 announced its intent to resume foreclosures in the 23 states 
which have judicial foreclosures. BOA had suspended foreclosures in those states on Oct. 1 due to 
revelations of fraud in the processing of foreclosure documents. BOA also announced it would resume 
foreclosures in a few weeks in the remaining 27 states. This move will likely encourage JP Morgan Chase 
and GMAC, who had similarly suspended foreclosures in the 23 judicial foreclosure states, to resume 
taking people’s homes. (New York Times, Oct. 18 ) 

In announcing its resumption of foreclosure activity, Barbara J. Desoer, president of Bank of America 
Home Loans, stated, “We did a thorough review of the process and we found the facts underlying the 
decision to foreclose have been accurate. We paused while we were doing that, and now we’re moving 
forward,” 

While most commentators treated this announcement with the cynicism and derision it deserved. Bank of 
America was emboldened to make this move because of the backing of the federal government. Bank of 
America noted that the major holders of its mortgages, Fannie Mae and Freddie Mac, had been consulted 
during the review and had signed off on the decision to resume foreclosures. Of 14 million mortgages 
BOA services, one-half of them, worth $2, 1 trillion, are owned or backed by Fannie Mae and Freddie 
Mac. 

THE EFFECTS ON COMMUNITY 

The effect of lenders refusal to work with borrowers, and more importantly Fannie Mae and Freddie 
Mac’s refusal to work with borrowers and instead their being the primary agents for evictions, is reflected 
in countless homes being left vacant in the aftermath of home foreclosures. Often these vacant homes are 



443 


Stripped and left abandoned here in Michigan and especially in the City of Detroit. Fannie Mae then turns 
the homes over to the City of Detroit for demolition, without even providing adequate funds to demolish 
the properties. Earlier this year, approximately 1,100 homes that were previously occupied were sent for 
demolition to the City of Detroit. The average cost of demolition as of a few years ago was $12,000.00 
per home. . The failure to prioritize home retention and to instead emphasize foreclosure and eviction 
leaves vacant houses as eyesores, and creates havens for crime destroying neighborhoods and the 
community. These very properties would be occupied if borrowers were given an opportunity to retain 
home ownership, millions in demolition itself could be saved, property values would be stabilized, and 
the taxpayers would come out ahead in the process. 

IT’S TIME FOR A TWO YEAR MORATORIUM ON FORECLOSURES 

It is time that the federal government at all levels take a closer look at the millions of families being 
destroyed by the foreclosure crisis and address this issue from the bottom up rather than the top down. 

It’s time for Congress to: 

1 ) Place an immediate two year moratorium on foreclosures and foreclosure-related evictions. During 
this moratorium courts should be empowered to set payments at a reasonable amount based on the 
borrower’s current income. Similar moratoriums were enacted in 25 states during the 1930’s, The 
foreclosure moratoriums were upheld as constitutional by the U S. Supreme Court in the case of Home 
Building d' Loan v. Blaisdell, 290 U.S. 398 (54 Sup. Ct, 231, 88 A.L.R. 1481) (1934). The 
Supreme Court held that the people’s right to survive during a period of economic emergency supersedes 
the contract clause of the US constitution. 

2) Institute a review of all predatory and fraudulent loans so principal can be reduced to reflect the actual 
value of the home. 

3) Clearly articulate in statutory language, enforceable In court by the borrower, that loan modifications 
are mandatory, not voluntary, if a lender is a participant in the Home Affordable Modification Program. 

4) Use the federal government’s authority based on the federalization of the mortgage industry to end the 
silent bailout to the banks, and make the priority keeping families in their homes while long-term 
solutions to this horrendous crisis that has destabilized the entire U.S. economy are developed. 

Vanessa G. Fluker, Esq. Jerome D. Goldberg, Esq. 

2920 East Jefferson, Ste. 1 0 1 2920 East Jefferson, Ste. 1 0 1 

Detroit, MI 48207 Detroit, MI 48207 

(313) 393-6005 (313) 393-6001 


Mr. Johnson. Mr. Deutsch? 

TESTIMONY OF TOM DEUTSCH, EXECUTIVE DIRECTOR, 
AMERICAN SECURITIZATION FORUM, NEW YORK, NY 

Mr. Deutsch. Representative Johnson, Members of the Com- 
mittee, my name is Tom Deutsch. And, as the executive director of 
the American Securitization Forum, I appreciate the opportunity to 
testify here today on behalf of the 330 ASF member institutions 



444 


who originate the collateral, structure the transactions, serve as 
trustees, trade the bonds, service the loans, and invest the capital 
in the preponderance of residential mortgage-backed securities in 
the United States. 

In my prepared statement, I highlight some of the key aspects 
of securitization as well as its critical importance to the U.S. and 
global economy. Importantly for this hearing, there are nearly 55 
million first-lien mortgages in America today that total approxi- 
mately $9.75 trillion of outstanding mortgage debt. Approximately 
three-quarters of this debt, or about $7 trillion, resides in mort- 
gage-backed securitization trusts and are beneficially owned by in- 
stitutional investors in the United States and around the world, 
such as pension funds, mutual funds, and insurance companies. 

But in my remarks today, I seek to address specifically the con- 
cerns raised by a few commentators, that securitization trusts may 
not actually own the $7 trillion of mortgages that are contained 
within those trusts. For example, a recent Congressional Oversight 
Panel report has even suggested that these issues could create sys- 
temic risk to the banking sector if loans weren’t validly assigned 
to the securitization trusts. 

But the concerns that have been raised have not been supported 
by substantiation that there are, in fact, signs of systematic fails 
in the process of assignments. Indeed, the origin of these concerns 
is not clear. They are not the result of a series of new court cases 
supporting the legal arguments advanced, but instead appear to be 
largely the result of novel academic theories. In fact, even the Con- 
gressional Oversight Panel report states that, quote, “The panel 
takes no position on whether any of these arguments are valid or 
likely to succeed,” end quote. 

So all of these dire consequences flow directly and solely from a 
single mistaken core premise — that is, the trusts, and ultimately 
the institutional investors such as pension funds and mutual funds, 
don’t actually own the $7 trillion of loans in those trusts. As dis- 
cussed in great detail in my written testimony, this core premise 
is incorrect. And, therefore, the dire consequences of this faulty 
premise will not follow. 

Just last month, the ASF issued a white paper on this subject 
that is part of our written testimony that puts to rest many of the 
questions that have previously been raised by the ownership of 
mortgage loans. In that white paper, ASF exhaustively studied tra- 
ditional legal principles and processes, including the Uniform Com- 
mercial Code, or UCC, and substantial case history throughout 
every one of the 50 U.S. States and the District of Columbia and 
found that traditional legal principles and processes are fully con- 
sistent with today’s complex holding, assignment, and transfer 
methods for mortgage loans. In fact, 13 major U.S. law firms, listed 
in Exhibit A to the ASF white paper, reviewed it and believe that 
the executive summary contained therein represents a fair sum- 
mary of the legal principles presented. 

Although the ASF white paper answered many of the concerns 
that have previously been presented, some new concerns have been 
raised since that white paper was published. For example, one com- 
mentator has proposed that securitizers have not met the contrac- 



445 


tual requirements for a complete or unbroken chain of endorse- 
ment. 

In our written testimony, we rebut this novel academic theory in 
great detail, with analysis of key contractual provisions, the intent 
of the contracting parties, industry custom, independent third- 
party trustee acceptance, as well as relevant caselaw and UCC ap- 
plicability. In particular, this argument overlooks the fact that each 
separate step in the chain of transfers of ownership by each party, 
from the originator to the securitization trust, is fully documented 
by a separate contract. 

The proposition itself, though — that securitization legal profes- 
sionals have uniformly opted out of the applicable laws, such as the 
UCC, to set an even higher bar for transfers but then subsequently 
and systematically ignored that higher bar — appear on their face to 
be illogical assertions and, ultimately, as a legal analysis in our 
written testimony demonstrates, are patently false. 

From time to time, though, mistakes will occur. And they cer- 
tainly do occur, particularly in a market where 55 million mort- 
gages are being serviced and in the worst housing crisis that we 
have seen since the Great Depression. But those mistakes do need 
to be addressed. But the contractual provisions of the Pooling and 
Servicing Agreement and other underlying documents allow for 
those mistakes to be corrected over time. 

In conclusion, the ASF greatly appreciates the opportunity to ap- 
pear before this Committee today. And I look forward to answering 
any questions the Committee Members may have. Thank you. 

[The prepared statement of Mr. Deutsch follows:] 



446 


Prepared Statement of Tom Deutsch 


American 

SEURITIZAIION 

32v3::F0RUIVI* 


statement of: 


Tom Deutsch 
Executive Director 
American Securitization Forum 


Testimony before the: 

United States House of Representatives 
Committee on the Judiciary 


Hearing on: 

Foreclosed Justice: Causes and Effects of the Foreclosure Crisis 


December 2, 2010 



447 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 2 


Chairman Conyers, Ranking Member Smith, Members of the Committee, my name is 
Tom Deutsch and as the Executive Director of the American Securitization Forum, 1 appreciate 
the opportunity to testify here today on behalf of the 330 ASF member institutions who originate 
the collateral, structure the transactions, serve as trustees, trade the bonds, service the loans and 
invest the capital in the preponderance of residential mortgage- and asset-backed securities 
t“ RMBS ”) and (“ ABS ”) in the United States, including those backed entirely by private capital 
as well as those guaranteed by Ginnie Mae and the government sponsored enterprises (“GSEs”) 
such as Fannie Mae and Freddie Mac. 

In this testimony, we seek first to highlight some of the key aspects of securitization as 
well as its importance to the U S. and global economy. Subsequently, we seek to address the 
concerns raised by a few commentators that the banking and housing markets may be subject to 
additional systemic risk because securitization tmsts may not actually own the trillions of dollars 
of mortgages that are supposed to be contained within those trusts. In addition to introducing the 
white paper that ASF issued two weeks ago, we also examine a number of the new concerns that 
have been raised since the introduction of that white paper. In particular, we discuss and provide 
detailed background for four key components of valid loan transfers, including: 

A. PSAs meet the requirement for a “complete” or “unbroken” chain of indorsement'; 

B. securitization trusts comply with New York trust law; 

C. RMBS trusts effectively achieve REMIC status; and 

D. mistakes do not affect validity of transfer. 


’ Note that the Uniform Commercial Code replaces tlie more common U.S. spelling of '‘endorsement” for the less 
common "indorsement.” Ihe UCC spelling is used ihrouglioul tliis testimonv for consistencv. 



448 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 3 

Ultimately, we find that the conventional process for loan transfers embodied in standard 
legal documentation for mortgage securitizations has been adequate and appropriate to transfer 
ownership of mortgage loans to the securitization trusts in accordance with applicable law and 
contract. Since loan transfers have generally been effective, all of the dire consequences that a 
few commentators have speculated on fade away, given the faulty premise that they start from. 
Moreover, a number of the concerns that have been raised that securitization professionals have 
unifonnly opted out of use of laws such as the Unifonn Commercial Code (“UCC”) to set a 
higher bar for transfers, but then subsequently and systematically failed to meet that higher bar, 
appear on their face to be illogical assertions and patently false. 

T. Role and Importance of Securitization to the Financial System and II.S. 

Economy 

Securitization — generally speaking, the process of pooling and financing consumer and 
business assets in the capital markets by issuing securities, the payment on which depends 
primarily on the performance of those underlying assets — plays an essential role in the financial 
system and the broader U S. economy. Over the past 40 years, securitization has grown from a 
relatively small and unknown segment of the financial markets to a mainstream source of credit 
and financing for individuals and businesses alike. 

In recent years, the role that securitization has assumed in providing both consumers and 
businesses with credit is striking: currently, there is over $12 trillion of outstanding securitized 
assets, including RMBS, ABS and asset-backed commercial paper (“ABCP”). This represents a 
market nearly double the normal size of all outstanding marketable U.S. Treasury securities — 




449 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 4 

bonds, bills, notes, and TIPS combined.^ Between 1990 and 2006, issuance of MBS grew at an 
annually compounded rate of 13%, from $259 billion to $2 trillion a year.^ In the same time 
period, issuance of ABS secured by auto loans, credit cards, home equity loans, equipment loans, 
student loans and other assets, grew from $43 billion to $753 billion. In 2006, just before the 
downturn, nearly $2.9 trillion in RMBS and ABS were issued. As these data demonstrate, 
securitization is clearly an important sector of today’s financial markets. 

The importance of securitization becomes more evident by observing the significant 
proportion of consumer credit it has financed in the U S. It is estimated that securitization has 
funded between 30% and 75% of lending in various markets, including an estimated 59% of 
outstanding home mortgages.’* Securitization plays a critical role in non-mortgage consumer 
credit as well. Historically, banks securitized 50-60% of their credit card assets.’ Meanwhile, in 
the auto industry, a substantial portion of automobile sales are financed through auto ABS.*' 
Overall, recent data collected by the Federal Reserve Board show that securitization has provided 
over 25% of outstanding U.S. consumer credit.^ Securitization also provides an important source 
of commercial mortgage loan financing throughout the U.S., through the issuance of commercial 
mortgage-backed securities (“CMBS”). 


^ U.S. Department of the Treastiiy, ''Monthly Statement of the Public Debt of the United States: August 31, 2009/ 
(August 2009). < http://w\\*tv.treasuiydirect.gov/go\1/reports/pd/mspd/2009/opds082009.pdf>. 

Nalional Economic Research Associates, Inc. (NERA), ''Sludv of the Impacl of Seciuflizalion on Consumers, 
Investors, Financial Institutions and the Capital Markets,’* pg. 16 (June 2009). 

<http://\\uvw. americansecuritization.com/uploadedFiles/ASF_NERA_Repoii:. pdf >. 

^ Citigroup, ''Does the World Need Secimlizalion?” pg. 10-1 1 (Dec. 2008). 
<hllp://vvvv\v.airicricansccurilizalion.com/uploadcdFilcs/Cilil21208_rcslarl_sccurilizalioii.pdr>. 

^ Ibid., pg. 10. 

^ Ibid., pg. 10 

' Federal Reseiv-e Board of Governors, "G19: Consumer Credit," (September 2009). 

<hllp://vvvv\v. rederalreserve.gov/releases/gl9/cuiTenl/gl9.liLm>. 



450 


ASF House Judiciary Testimony 
December 2, 2010 
Page 5 

Over the years, securitization has grown in large measure because of the benefits and value it 
delivers to transaction participants and to the financial system. Among these benefits and value 
are the following: 

1 . Efficiency and Cos! of Financing. By linking financing terms to the perfonnance of a 
discrete asset or pool of assets, rather than to the future profitability or claims-paying 
potential of an operating company, securitization often provides a cheaper and more 
efficient form of financing than other types of equity or debt financing. 

2. Incremental Credit Creation. By enabling capital to be recycled via securitization, 
lenders can obtain additional funding from the capital markets that can be used to support 
incremental credit creation. In contrast, loans that are made and held in a financial 
institution’s portfolio occupy that capital until the loans are repaid. 

3. Credit Cost Reduction. The economic efficiencies and increased liquidity available from 
securitization can serve to lower the cost of credit to consumers. Several academic 
studies have demonstrated this result. A recent study by National Economic Research 
Associates, Inc., concluded that securitization lowers the cost of consumer credit, 
reducing yield spreads across a range of products including residential mortgages, credit 
card receivables and automobile loans. ^ 

4. Liquidity Creation. Securitization often offers issuers an alternative and cheaper form of 
financing than is available from traditional bank lending, or debt or equity financing. As 

® National Economic Research Associates, Tnc. (NRRA), “Study of the Impact of Securitization on Consumers, 
Investors, h inancial Institutions and the Capital Markets," (June 2009), pg. 16. 
<hllp:/Avvv\v.americansecurilizalion.com/uploadedFiles/ASF_NERA_Reporl.pdr>. 



ASF House Judiciary Testimony 
December 2, 2010 
Page 6 


451 


a result, securitization serves as an alternative and complementary form of liquidity 
creation within the capital markets and primary lending markets. 

5. Risk Transfer. Securitization allows entities that originate credit risk to transfer that risk 
to other parties throughout the financial markets, thereby allocating that risk to parties 
willing to assume it. 

6. Customized Financing and Investment Products. Securitization allows for precise and 
customized creation of financing and investment products tailored to the specific needs of 
both issuers and investors. For example, issuers can tailor securitization structures to 
meet their capital needs and preferences and diversify their sources of financing and 
liquidity. Investors can tailor securitized products to meet their specific credit, duration, 
diversification and other investment objectives.’ 

Recognizing these and other benefits, policymakers globally have taken steps to help 
encourage and facilitate the recovery of securitization activity. The G-7 finance ministers, 
representing the world’s largest economies, declared that “the current situation calls for urgent 
and exceptional action... to restart the secondary markets for mortgages and other securitized 
assets.”'’ The Department of the Treasury stated in March, 2009 that “while the intricacies of 
secondary markets and securitization... may be complex, these loans account for almost half of 


^ The vast majorilv of investors in the securili/aliun raiirkel are inslilulional investors, ineluding banlvs, insurance 
companies, mutual funds, money market funds, pension fimds, hedge fimds and other large pools of capital. 
Although these direct market participants arc institutions, many of them — pension funds, mutual funds and 
insurance companies, in particular — invest on behalf of individuals, in addition to other account holders. 

G-7 f inance Ministers and Central Bank Governors Plan of Action (Oct. 10, 2008). 

<hl lp:/Avvv \v. Ireas.gov/press/releases/lipl 195. htm>. 



ASF House Judiciary Testimony 
December 2, 2010 
Page 7 


452 


the credit going to Main Street,”” underscoring the critical nature of securitization in today’s 
economy. The Chaimian of the Federal Reserve Board noted that securitization “provides 
originators much wider sources of funding than they could obtain through conventional sources, 
such as retail deposits” and also that “it substantially reduces the originator's exposure to interest 
rate, credit, prepayment, and other risks ’’’^ Echoing that statement. Federal Reserve Board 
Governor Elizabeth Duke stated that the “financial system has become dependent upon 
securitization as an important intermediation tool,”^^ and the International Monetary Fund (IMF) 
noted in its Global hhiancial Stability Report that “restarting private-label securitization markets, 
especially in the United States, is critical to limiting the fallout from the credit crisis and to the 
withdrawal of central bank and government interventions.”’"^ There is clear recognition in the 
official sector of the importance of the securitization process and the access to financing that it 
provides lenders, and of its importance to the availability of credit that ultimately flows to 
consumers, businesses and the real economy. 


Restoration of function and confidence to the securitization markets is a particularly 
urgent need, in light of capital and liquidity constraints currently confronting financial 
institutions and markets globally. As mentioned above, at present nearly $12 trillion in U.S. 
assets are fijnded via securitization. With the process of bank de-leveraging and balance sheet 


U.S. Department of the TreasuiT, '‘Road to Stability: Consumer & Dusiness Trending Initiative/' (March 2009). 
<http://\w-w.financialstahiliW.go\7roadtostahility/lendingmitiative.html>. 

Beniiinke, Ben S., "Speech at the UC Berkeley /UCLA Symposium: The Mortgage Meltdown, the Economy, and 
Public Policy, Berkeley, California. ” Board of Govetiiors oflhe Federal Reserve Syslem (Oct. 2008). 
<http://\\uvw.federalresen’e.go\7newsevents/speech/hernaul':e20081031a.htm>. 

Dulye, Elizabeth A., "Speech at the AICPA National Conference on Btuilvs and Savings Institutions, Washington, 
D.C." Board of Goveivors of the Federal Reserve System (Sept. 2009). 
<http://wuv\v.fcdcralrcscn’c.gov/nc\vscvcnts/spccch/dukc20090914a.htm>. 

^‘^Tntemational Monetary^ Fund, “Restarting Securitization Markets: Policy Proposals and Pitfalls " Global Financial 
Stability Report: Navigating the Financial Challenges Ahead (Oct. 2009), pg.33. 
<hltp://vvvv\v.imr.org/e\teraal/puhs/iVgisr/2009/02/pdiyte.\t.pdi’>. 



453 


ASF Flouse Judiciary Testimony 
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Page 8 

reduction still underway, and with increased bank capital requirements on the horizon, such as 
those expected in Basel 111, the funding capacity provided by securitization cannot be replaced 
with deposit-based financing alone in the current or foreseeable economic environment. In fact, 
the IMF estimated that a financing “gap” of $440 billion existed between total U S. credit 
capacity available for the nonfinancial sector and U S. total credit demand from that sector for 
the year 2009.'^ Moreover, non-bank finance companies, who have played an important role in 
providing financing to consumers and small businesses, are particularly reliant on securitization 
to fund their lending activities, since they do not have access to deposit-based funding. Small 
businesses, who employ approximately 50% of the nation’s workforce, depend on securitization 
to supply credit that is used to pay employees, finance inventory and investment, and other 
business purposes. Furthennore, many jobs are made possible by securitization. For example, 
a lack of financing for mortgages hampers the housing industry; likewise, constriction of trade 
receivable financing can adversely affect employment opportunities in the manufacturing sector. 
To jump start the engine of growth and jobs, securitization is needed to help restore credit 
availability. 

Simply put, the absence of a properly functioning securitization market, and the funding 
and liquidity this market has historically provided, adversely impacts consumers, businesses, 
financial markets and the broader economy. The recovery and restoration of confidence in 
securitization is therefore a necessary ingredient for economic growth to resume, and for that 
growth to continue on a sustained basis into the future. 

’ ^ International Monetaiy tund, “ i'he Road to Recoveiy." Global Financial Stability Report: Navigating the 
Financial Challenges Ahead (Ocl. 2009), pg. 29. <bltp:/Vvvvvvv.imr.org/e.\ieni ai/ p u bs.0'l/g[W20 0 9/02/p( ii7lcxL pdr>. 



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ASF House Judiciary Testimony 
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Page 9 

II. Transfers of Loans into the Secondary Mort£a2e Market 

By way of background, there are approximately 55 million first lien mortgages 
outstanding in the United States today and an additional 25 million homes that have no mortgage 
attached to them. The debt outstanding for these 55 million mortgages is nearly $9.75 trillion 
dollars, of which approximately $7 trillion dollars resides in securitization trusts and are 
beneficially owned by institutional investors around the world. Approximately $5.5 trillion 
dollars of these loans are government guaranteed in Ginnie Mae and GSE RMBS, with an 
additional $1.5 trillion in outstanding private-label RMBS that has no government backstop. An 
additional $2.75 trillion dollars of mortgage debt is owned in the portfolios of commercial banks, 
savings institutions and insurance companies. In addition to the $9.75 trillion of outstanding first 
lien mortgages, approximately $1 trillion of second liens are currently outstanding in the United 
States. 

As part of the larger public discourse about the current state of the residential mortgage 
market and the increasing number of foreclosures in America, a surprising number of concerns 
have been raised in the last couple of months in the midst of the worst housing crisis since the 
Great Depression that question whether the common legal procedures that have been used to 
transfer residential mortgage loans into RMBS trusts were in fact legally valid. A number of 
different dire outcomes have been raised if loans weren’t validly transferred, including borrower 
confusion as to who to pay their mortgage to, large bank losses, and further housing market 


’ ^ Data compiled by Amherst Securities, based on information from the h ederal Reseive h low of h unds, h amiie 
Mac, Freddie Mac, Ginnie Mae mid CorcLogic. 



455 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 10 

turmoil. A recent Congressional Oversight Panel Report (“ COP Report ’”)'^ has even suggested 
that these issues could create systemic risk concerns if loans weren’t appropriately assigned to 
securitization trusts. 

But the key incorrect premise that each of these dire outcomes relies upon is that the $7 
trillion dollars of outstanding securitized mortgage debt has not in fact been systematically 
transferred in a legally sound manner. ASF believes these concerns are without merit and our 
membership is confident that these methods of transfer are sound and based on a well-established 
body of law governing the multi-trillion dollar secondary mortgage market. The conventional 
process for loan transfers embodied in standard legal documentation for mortgage securitizations 
has been adequate and appropriate to transfer ownership of mortgage loans to the securitization 
trusts in accordance with applicable law. This process is sufficient to establish ownership by the 
securitization trusts. Moreover the concerns that have been raised have not been supported by 
substantiation that there are in fact any material signs of systematic fails in the system. Indeed, 
the origin of these concerns is not clear: they are not the result of a series of court cases 
supporting the arguments advanced and appear to be largely the result of academic theories. In 
fact, even the COP Report states that “the Panel takes no position on whether any of these 
arguments are valid or likely to succeed.”'* 

As part of our members’ diligence into these public concerns, the ASF issued two weeks 
ago a white paper legal study entitled “Transfer and Assignment of Residential Mortgage Loans 
in the Secondary Mortgage Market” (the “ ASF White Paper ”!, which is attached to this 

^ ’ Congressional Oversight Panel, November Oversight Report, Examining the Consequences of Mortgage 
Irregularities for Financial Slahilily and Foreclosure Mitigation (November 1 6, 2010) 
< http://cop.senate.gov/dociinients/cop-l 1 1610-repon.pdf >. 

Ibid., pg. 25, ibolnole 75. 



456 


ASF House Judiciary Testimony 
December 2, 2010 
Page 1 1 

testimony as Attachment A. In the White Paper, the ASF exhaustively studied traditional legal 
principles and processes, including common law, the Uniform Commercial Code and substantial 
case history, and finds that traditional legal principles and processes, including the not codified 
common law rule that '‘the mortgage follows the note,” are fully consistent with today's complex 
holding, assignment and transfer methods for mortgage loans, which are legally effective for 
participants in the secondary mortgage market to transfer mortgage loans. Thirteen major U.S. 
law firms noted in Exhibit A to the ASF White Paper reviewed the ASF White Paper and believe 
that the Executive Summary contained therein represents a fair summary of the legal principles 
presented. Although we believe the ASF White Paper answered a number of the concerns that 
had previously been raised, some new concerns have been raised since the ASF White Paper has 
been published. In this testimony, we address four of these new concerns. 

A. PSAs Meet the Requirement for a “Complete” or “Unbroken” Chain of 
Indorsement 

In testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs 
on November 16, 2010,^'^ Mr. Adam J. Levitin, Associate Professor of Law at Georgetown 
University Law Center, commented that while he did not disagree with the statements in the ASF 
White Paper about how mortgage loans may be legally transferred pursuant to contract law and 
the UCC, he believes that the ASF White Paper does not address some additional arguments as 
to why mortgage loans might not have been legally transferred to RMBS trusts in many cases. 

Testimony of Professor Adam .T. Levitin, U.S. Senate Committee on Banking, Housing and Urban Affairs 
Hearing, November 16, 2010 

http://bank.mg, senate. gov/public/index.cimiTiise,Actioii=i learings.llearing&lleariag iD=^di>>cb685-c!bf-4eea-941d- 
.c|Pii5]2.387Ua 




457 


ASF House Judiciary Testimony 
December 2, 2010 
Page 1 2 

These arguments are outlined in Mr. Levitin’s testimony submitted to the Senate Committee for 
these hearings, and further in testimony submitted to the House Financial Services Committee, 
Subcommittee on Housing and Social Opportunity, on November 18, 2010.^^ We seek to 
address these concerns directly herein. 

In his written testimony as well as his statements before the Senate Committee, Mr. 
Levitin does not rely on the decisions in any court cases but instead discusses standard 
provisions of documentation typically used to issue RMBS, which generally is in the form of a 
pooling and servicing agreement f' PSA ”). A typical PSA includes a section requiring that legal 
documents for each pooled mortgage loan be delivered to the trustee, or to a custodian on the 
trustee’s behalf. This provision typically requires delivery of the original mortgage note, which 
must bear the following indorsements: 1) either an indorsement in blank or an indorsement to 
the trustee, and 2) a ‘complete’ or ‘unbroken’ chain of indorsements from the originator or 
named payee to the person signing the indorsement in blank or to the trustee. The language does 
not specify who must sign the indorsement in 1). The language used in these typical provisions 
in any PSA uses either the word “complete” or “unbroken”, with no apparent difference in 
intended meaning from deal to deal. The typical language does nm state, nor does it imply, that a 
“complete” or “unbroken” chain means that all prior owners or holders of the note must appear 
as part of the chain. Nor does any judicial proceeding consider or uphold this novel opinion. Nor 
does Professor Levitin provide any third-party support for his interpretation of a typical PSA. 


^‘■^Testiinonv of Professor Adam .T, T.evitin, House Pinancial Sendees Committee, Subcommittee on Housing and 
Social Oppoiltmiw Hearing, November 18, 2010 

' I II'. Ml c ['Ll s.liu usc.goi/Medit i/r il e/ lieari ngs /1 1 1 /Levilinl 1 1 810. pdf >. 



458 


ASF Flouse Judiciary Testimony 
December 2, 2010 
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In his testimony, Mr. Levitin suggests, but without providing any source of authority for 
his interpretation of contractual intent, that the typical PSA requirement for a “complete” chain 
of indorsements was intended to mean that there must be a separate indorsement from each and 
every person who was a prior owner of the note, including the originator, the securitization 
sponsor and the depositor. From his interpretation flows a number of seemingly logical but 
progressively more dire consequences, including: 

i. the PSA was intended to supersede standard indorsement practice as codified in 
the UCC; 

ii. the parties universally failed to comply with this requirement to show an 
expanded chain of indorsements; 

iii. such failure violates the express terms of the PSA and therefore applicable trust 
law requires that transfers of the mortgage loans to the trust are void; 

iv. therefore the trusts don’t really own anything and the trusts furthermore violate 
REMIC requirements; 

V. as a result the banks that sold the loans really still own them; and 

vi. the banks must repay all investors in full. 

All of these consequences flow, however, from a single mistaken core premise — that the typical 
PSA requirement for indorsements requires this expanded chain. As discussed below, this core 
premise is incorrect, and therefore the consequences of this premise do not follow. 

The typical PSA requirement for a complete or unbroken chain of indorsements to the 


person signing the indorsement in blank means only that there be no gaps in the chain of 



459 


ASF House Judiciary Testimony 
December 2, 2010 
Page 14 

indorsements, and that the chain of indorsements be sufficient to effect a transfer to the trust 
under applicable law. This provision would be interpreted in light of applicable law as well as 
customary indorsement practice, and the intent of the parties as evidenced by their 
contemporaneous conduct, all of which support the industry custom reading of a ‘"complete” or 
“unbroken” chain. 

As is clear in the ASF White Paper, for mortgage notes that are negotiable instruments, 
transfer may be made by negotiation in accordance with UCC Article 3, which requires an 
indorsement Once a negotiable mortgage note has been endorsed in blank, negotiation may be 
effected by transfer of possession alone, until an indorsement has been made or completed in the 
name of a specific person. In other words, if there is an indorsement in blank, the note may be 
transferred to numerous successive parties without any need for a separate indorsement to each 
purchaser. Sales of mortgage notes may also be made pursuant to UCC Article 9, and such a sale 
is automatically perfected (without delivery of any mortgage note and with no requirement 
relating to any indorsement) as long as value is given in accordance with an agreement that 
specifies the mortgage loan to be conveyed, such as a loan schedule to a PSA. 

In interpreting the typical PSA requirement for indorsements, we note that this 
requirement appears in the section that relates to transfer and delivery of the mortgage loans to 
the trustee. In this context, a “complete” or “unbroken” chain of indorsements is satisfied if the 
indorsements are sufficient to transfer all rights in and to the mortgage notes to the trustee under 
applicable law. Thus, for example, where the note was initially payable to originator A, then 
sold to securitization sponsor B, who transferred to depositor C who in turn is transferring the 



460 


ASF House Judiciary Testimony 
December 2, 2010 
Page 1 5 

note to trustee D, a complete chain of indorsements could be: 1) an indorsement from A to B, 
followed by an indorsement by B in blank, or 2) an indorsement by A in blank. Either of those 
examples of indorsements, together with delivery of the note to D, would be sufficient to effect a 
negotiation and transfer to D, and therefore would be a “complete"’ or “unbroken” chain of 
indorsements as required by standard PSA language. Examples of an incomplete or broken 
chain would be as follows: 1) no indorsement by A, or 2) an indorsement by A to X, followed by 
an indorsement by B in blank. Lnportantly, for the purposes for which indorsement is required 
by the PSA (which are limited to evidencing the transfer and delivery of the mortgage loans to 
the trustee), an indorsement by A in blank is no less sufficient or effective than an indorsement 
from A to B, followed by an indorsement from B to C, followed by an indorsement from C to D. 
In other words, the typical PSA does not impose contractual requirements that exceed those 
contained in the UCC, which has been adopted by all fifty states and the District of Columbia, as 
it pertains to the transfer of an interest in a mortgage note. 

Moreover, the intended meaning of the typical PSA requirement for indorsements is 
illustrated by the contemporaneous conduct of the parties to the transactions. Sellers into 
securitizations generally deliver physical mortgage notes with indorsements in formats 
(following the example above) such as 1) an indorsement from A to B, followed by an 
indorsement by B in blank, or 2) an indorsement by A in blank. It was not at all typical nor 
required to show an indorsement to or from the depositor (C in this example). Furthermore, 
independent, third-party trustees and custodians checking in mortgage notes believed that a note 
showing indorsements in these formats satisfied the requirement that there be a ‘complete’ or 



461 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 16 

‘unbroken’ chain of indorsements. This actual conduct demonstrates the intended meaning of 
the indorsement requirements. 

Mr. Levitin argues that the intended meaning of the typical PSA requirement for 
indorsements is that the requirement for a ‘complete’ or ‘unbroken’ chain means that every prior 
holder needs to have a separate indorsement to that holder. In other words that, following the 
above example, there must be an indorsement from A to B, followed by an indorsement from B 
to C, followed by an indorsement from C to D. Yet there is no persuasive basis for the 
proposition that the parties intended that the typical PSA provisions required this expanded chain 
of indorsements, nor is there any case law to support Mr. Levitin’s view. 

Mr. Levitin argues that as a result of his interpretation the indorsement requirements 
intended an expanded chain of indorsements, and the parties therefore intended to contract 
around the UCC and impose upon themselves indorsement requirements that are in excess of 
what is required to satisfy applicable UCC provisions. It is unclear and seemingly unreasonable 
to practicing industry lawyers why parties to a transaction would contract around the UCC by 
imposing significant additional indorsement requirements upon themselves, and then to have 
systematically failed to observe those expanded requirements. On the other hand, it is very 
reasonable to interpret the PSA language as not having been intended to require this expanded 
chain of indorsements above and beyond UCC requirements for indorsements, where the actual 
indorsement practice satisfied the UCC requirements. 

Mr. Levitin offers the following argument to support the interpretation that an expanded 
chain of indorsements was intended to be required under PSA contractual provisions: 



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ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 1 7 

“The reason for this additional requirement is to provide a clear evidentiary basis for all 
of the transfers in the chain of title in order to remove any doubts about the bankruptcy 
remoteness of the assets transferred to the trust. Absent a complete chain of 
indorsements, it could be argued that the trust assets were transferred directly from the 
originator to the trust, raising the concern that if the originator filed for bankruptcy, the 
trust assets could be pulled back into the originator’ s bankruptcy estate.”^' 

However, this argument overlooks the fact that each separate step in the chain of transfers 
of ownership by each party from the originator to the trust is fully documented by a separate 
contract. In other words, there is a contract covering the sale from A to B, and another contract 
covering the sale from B to C, and the PSA itself documents the sale from C to D. There is no 
need for an expanded chain of indorsements to make the chain of transfers of ownership any 
more plain and evident than it already is. And there is no basis for the proposition that the 
parties thought that an expanded chain of indorsements to override the UCC was necessary or 
useful for this purpose. 

B. Securitization Trusts Comply with New York Trust Law 

Because the parties did not intend for the expanded chain of indorsements to be 
contractually required under the PSA, the further argument that the transfers to the trusts were 
void under New York trust law also fails. 


Testimony of Professor Adam J. T,evitin, I J. S. Seriate Committee on Banking, Housing and Urban Affairs 
Hearing, November 16, 2010 

http://bank.mg, senate. gov/public/index.cimiTiiseActioii=i learmgs.llearing&llearing iD=^di>>cb685-c!bf-4eea-941d- 
.ci!A1517387Ja 




463 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 1 8 

Professor Levitin cites New York E.P.T.L. Section 7.2-4 as authority for the concept that 
a transfer to a New York common law trust that is in contravention of the trust documents is 
void. However, that section actually refers to any “sale, conveyance or other act of the trustee in 
contravention of the trust” [emphasis added], not sales or conveyances to the trust. This section 
is intended to protect trust beneficiaries from unauthorized acts by the trustee. Cases interpreting 
this section relate to wrongful acts by trustees with respect to assets that have previously been 
transferred into the trust, such as acts that are illegal or which dissipate or impair assets of the 
trust. Moreover, this section contains an exception for any such acts that are authorized by any 
other provision of law. As we explained in the preceding section, the method used to convey the 
mortgage loans to the trustee is consistent with the UCC. 

In his November 18 written testimony, it is stated that “transfers to New York common 
law trusts are governed by the common law of gifts.” No authority is given for that statement, 
and we believe that this statement is not correct with respect to business or investment trusts, 
where transfers are made to the trust for consideration in commercial transactions, and not as 
gifts. The testimony then goes on to cite cases, which relate to the common law of gifts, for the 
proposition that assets must be transferred in a way “such that no one else could possibly claim 
ownership,” and then reads the cases to impose on all transfers to New York common law trusts 
a requirement that “the mere recital of a transfer is insufficient to effectuate a transfer; there must 
be delivery in as perfect a manner as possible.” The testimony goes on to argue that the 
contractual language in each PSA that transfers and conveys ownership of the mortgage loans to 
the trustee for the benefit of the investors is mere “recital” language that is ineffective in 
transfers to common law trusts, and further suggests that delivery of the note with an 



464 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 19 

indorsement in blank is defective under this standard because it turns a note “into bearer paper to 
which others could easily lay claim.” 

The more recent of the cases cited in the testimony, Vincent v. Putnam, 248 N. Y. 76 
(N.Y., 1928), involves a widow who received stocks and bonds by bequest from her husband, 
where the will provided that as to bequeathed remainder property that upon her death “shall 
remain at that time undisposed of) such property would pass to the husband's next of kin. The 
widow attempted to dispose of the stocks and bonds shortly before her own death by gift to one 
of her blood relatives. However, the only actions taken by the widow to effect the gift were to 
deliver the stock and bond certificates to her own attorney, with a verbal instruction to give them 
to her relative. This was not a transfer for consideration, and it was not a transfer to a common 
law trust. This case is about delivery of property to an agent of the donor, with an instruction to 
deliver the property to the intended donee, and the holding is that such delivery is not a 
completed gift. The “mere words” in this case, that were insufficient to effect a conveyance, 
were the verbal instruction to the widow’s attorney to make the gift, which instruction could 
have been revoked at any time. We believe that the cases cited in the November 18 testimony do 
not support the proposition that transfers of property to a New York common law trust, for 
consideration in a commercial transaction, require a higher standard or more rigid set of transfer 
requirements than would apply in any transfer for value of such property in any other 
commercial transaction. 

The notion that new legal decisions in all 50 states would be handed down with no legal 
precedence to nullify trillions of dollars of mortgage securitization transactions simply because 



465 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 20 

the trusts acquired an interest in the pooled loans in accordance with applicable law but not in the 
manner that Mr. Levitin claims the trust documents require, appears on its face to be an 
unreasonable assertion. As noted above, we are confident that the standard processes of 
delivering loans into securitization trusts are proper as a matter of law and contract, and we are 
hard pressed to give any credence to an unsupported academic theory that the courts would 
thwart the intentions and expectations of the parties by voiding transfers of mortgage loans. 

C. RMBS Trusts Effectively Achieve REMIC Status 

A final issue that we would like to address in this section relates to Real Estate Mortgage 
Investment Conduits (“REMTC”), which is a tax election under federal income tax law frequently 
used for RMBS under which trusts backed by qualified mortgages can issue multiple classes of 
securities that are treated as debt, with the trust exempted from entity level taxation. One 
argument that has been advanced by a couple commentators is that if the mortgage loans were 
not validly transferred to the trust, any defect in the procedures used to make the transfer can 
now not be cured without violating regulations that prohibit transfers of qualified mortgages to a 
REMIC more than 90 days after it was created. We believe that this argument is without merit, 
because the argument that there were wholesale failures to properly convey ownership of 
mortgage loans to RMBS trusts are without merit as discussed above and in the ASF White 


Paper. 



466 


ASF Flouse Judiciary Testimony 
December 2, 2010 
Page 21 


D. Mistakes Do Not Affect Validity of Transfer 

The fact that the ASF White Paper finds that the standard industry practices are legally 
effective for participants in the secondary mortgage market to transfer mortgage loans does not 
mean that mistakes never happen. From time to time mistakes are certain to occur, particularly 
in a market where 55 million mortgages are transferred and/or serviced, and that is one reason 
why typical language in a PSA provides the opportunity to cure mistakes. Tt is important, 
however, to distinguish between document deficiencies that impair the validity of the transfer of 
mortgage loans, on the one hand, and the additional steps that may be necessary to enforce the 
loan documents against the borrowers, on the other hand. The three new concerns that 
we counter in this testimony call into question the validity of a mortgage loan transfer. We 
believe that these concerns are misplaced and that, in the ordinary course, document deficiencies 
on a one-off basis may delay foreclosure while the paperwork is corrected or completed but will 
not impair the initial transfer of the loan to the securitization trust. 

In conclusion, the ASF greatly appreciates the invitation to appear before this Committee 
to share our views related to these current issues. I look forward to answering any questions the 
Committee may have. 

Thank you. 



467 


ASF House Judiciary Testimony 
December 2, 2010 
Page 22 


ATTACHMENT A 
ASF White Paper 

Transfer and Assignment of Residential Mortgage Loans 
in the Secondary Mortgage Market 
November 16, 2010 



468 


Transfer and Assignment 
of Residential Mortgage 
Loans in the Secondary 
Mortgage Market 


ASF WHITE PAPER SERIES 
NOVEMBER 16, 2010 


American 

SaURIHZAHON 

^=F0RUM. 





469 


mis WHITE PAPER AND ITS EXECUTIVE SUMMARY ARE INTENDED FOR 
INFORMATIONAL PURPOSES ONLY AND DO NOT CONTAIN OR CONVEY LEC.AL 
ADVICE. A LECAL OPINION OR A REPRESENTATION AS TO THE FACTS OF ANY 
PARTICULAR TRANSACTION PROVIDED BY THE AMERICAN SECURITIZATION 
FORUM OR HY ANY OF THE 1.AW FIRMS REFERENCED BELOW. THE INFORMATION 
IN THE F:XF.CUriVi; SUMMARY AND WHITE PAPER SIK>UI.D NOT BE USED OR 
RELIED UK>N IN REGARD TO ANY PARTICUUR FACTS OR CIRCUMSTANCES. 
THE l.AW FIRM K8tL CATES LLP SERVED AS OUTSIDE COUNSEL TO THE AMERICAN 
SECURITIZATION FORUM IN CONNECTION WITH Tilt PREPARAFION OF 
THE WHITE PAPER AND EXECUTIVE SUMMARY. THE OTHER LAW FIRMS 
LISTED ON EXHIBIT A HAVE REVIEWED THE WHITE PAPER AND BELIEVE THAT 
THE EXECUTIVE SUMMARY REPRESENTS A FAIR SUM.MARY OF THE IT.GAL 
PRINCIPLES PRESF.N FED. 


lA Amcrk4iiSecuri(i/4llun iiinim.iiii.. Novctnh4rr20tU. All icxerved. 


Amencan 

SECURfUZAnON 

^=F0RUM. 


ASF Hcadquarlcr^l One World FinanciBl Center. 30th Floor! New York, NY 102S1 1 21 2.4 12.7 IlM) 
www.americansecuritixalion.com 



470 


Table of Contents 

Introduction 1 

Executive Summary 2 

1. Basic Principles 2 

2. 'transfer of Promissory Notes vSecured by Mortgages 3 

3. Assignment and Transfer of Ownership of Mortgages 3 

4. Conclusion 5 

Exhibit A 6 

Transfer and Assignment of Residential Mortgage Loans 

in the Secondary Mortgage Market 7 

1. Basic Principles 7 

2. 'transfer of Promissory Notes Secured by Mortgages 9 

WTiat Constitutes a “Negotiable Instrument?” 10 

ttow is a Negotiable Mortgage Note transferred? 11 

Who May Enforce A Negotiable Mortgage Note? 12 

WTiat Rights Against Borrower Defenses are Available to the Holder 

of a Negotiable Mortgage Note? 13 

How Is a Mortgage Note Transferred Under Article 9 of the UCC? 14 

transfer of Mortgage Notes; Conclusion 15 

3. Assignment and Transfer of Ownership of Mortgages 16 

What is the Relationship Between the Transfer of a Mortgage Note 

and the Transfer of Ownership of the Mortgage? 16 

What is the Relationship Between the UCC and State Real Property Laws? 23 

How Does the Use of MERS Affect 'these Issues? 24 


4. Conclusion 


27 



471 


Introduction 

Recently, a few commentators have raised a number of legal theories questioning whether securitization 
trusts, either those created by private financial institutions or those created by government sponsored 
enterprises, such as Ginnie Mae, Fannie Mae or Freddie Mac, have valid legal title to the seven trillion dollars 
of mortgage notes in those trusts. In an effort to contribute thorough and well-researched legal analysis to 
the discussion of these theories, the American Securitization Forum (“ASF”) issues the enclosed white paper 
entitled “Transfer and Assignment of Residential Mortgage Loans in the Secondary Mortgage Market” (the 
“White Paper”). The White Paper provides a detailed overview of the legal principles and processes by which 
mortgage loans are typically held, assigned, transferred and enforced in the secondary mortgage market and in 
the creation of mortgage-backed securities (“MBS”). 'Ihese principles and processes have centuries-old origins, 
and they have continued to be sound and validated since the advent of MBS over forty years ago. 

While the real properly laws of each of the .SOU.S. states and the District of Columbia alfecL the method 
of foreclosing on a mortgage loan in default, the legal principles and processes discussed in this While Paper 
result, if followed, in a valid and enforceable transfer of mortgage notes and the underlying mortgages in each 
of these jurisdictions. To be thorough, the White Paper undertakes a review of both common law and the 
Uniform Commercial Code (the “UCC”) in each of the 50 US. slates and the District of Columbia. One of the 
most critical principles is that when ownership of a mortgage note is transferred in accordance with common 
securitization processes, ownership of the mortgage is also automatically transferred pursuant to the common 
law^ rule that “the mortgage follow^s the note.” The rule that “the mortgage folkws the note” dates back centuries 
and has been codified in the UCC. In essence, this means that the assignment of a mortgage to a trustee does 
not need to be recorded in real property records in order for it to be a valid and binding transfer. 

In summary, these traditional legal principles and processes are fully consistent with todays com- 
ple.s holding, assignment and transfer methods for mortgage loans and those methods are legally elfective 
for participants in the secondary mortgage market to transfer mortgage loans. Thirteen major US. law firms 
noted in Lxhibit A have reviewed the White Paper and believe that the Executive Summary contained therein 
represents a fair summary ot the legal principles presented. ASF wishes to thank each of these firms and the 
dozens of preeminent MBS attorneys who have contributed to the development of this White Paper. 


Tom Deutsch 

Executive Director 

American Securitization Fonim 



1 



472 


Executive Summary 

1. Basic Principles 

The two core legal documents in most residential mortgage loan transactions are the promissory note 
and the mortgage or deed of trust that secures the borrower’s payment of the promissory note. In a t)Tpical 
“private-label” mortgage loan securitization, each mortgage loan is sold to a trust through a series of steps. 
A mortgage note and a mortgage may be sold, assigned and transferred several times between the time the 
mortgage loan is originated and the time the mortgage loan ends up with the trust. The legal principles that 
govern the assignment and transfer of mortgage notes and related mortgages are determined, in significant 
part, by the Uniform C(.)mmercial Code (“UCC”), which has been ad(.)pted by all 50 states and the District of 
Columbia.^ 

The residential mortgage notes in common usage typically arc negotiable instruments. As a general 
matter, under the UCC, a negotiable mortgage note can be transferred from the transferor to the transferee 
through the indorsement of the mortgage note and the transfer of possession of the note to the transferee or 
a custodian on behalf of the transferee. An assignment (.)f the related mortgage is also typically delivered t(.) 
the transtcrcc or its custodian, except in cases where the related mortgage identifies the Mortgage Electronic 
Registration System (“MERS”) as the mortgagee. Such assignments generally are in recordable form, but 
unrecorded, and are executed by the transferor wiLh(,)ut identifying a specific transferee - a so-called assignment 
“in blank.” Intervening assignments, in some cases, may be recorded in the local real estate records. 

In some mortgage loan transactions, MERS becomes the mortgagee of record as the nominee of the 
loan originator and its assignees in the local land records where the mortgage is recorded, either when the 
mortgage is first recorded or as a result of the recording of an assignment of mortgage to MERS. This means 
that MERS is listed as the record title holder of the mortgage. MERS’ name does not appear on the mortgage 
note, and the beneficial interest in the mortgage remains with the loan originator or its assignee. The documents 
pursuant to which MERS acts as nominee make clear that MERS is acting in such capacity for the benefit of 
the loan originator or its assignee. When a mortgage loan is originated with MERS as the nominal m(.)rtgagee 
(or is assigned to MERS post-origination), MERS tracks all future mortgage loan and mortgage loan servicing 
transfers and other assignments of the mortgage loan unless and until owmership or servicing is transferred (or 
the mortgage loan is otherwise assigned) U.) an entity that is not a MERS member. In this way, MERS serves as 
a central system to track changes in ownership and servicing of the mortgage loan. Fannie Mae, Freddie Mac 
and Ginnie Mae, among other governmental entities, permit mortgage loans that they purchase or securitize 
to be registered with MERS. 


^ Relerences Lo the UCC are Ui ihe OdiLial Text olTlie Model UCC, as revised, issued by Lhe NaLional Conlerence ol Commissioners 
on Uniform Stale Laws. 

^ Note that the UCC replaces the more common US. spelling of “endorsement” for the less common “indorsement.” Rie UCC spell- 
ing is used ihroughouL this Fxecutive Summary. 


2 



473 


2. Transfer of Promissory Notes Secured by Mortgages 

The law of negotiable instruments developed over the centuries as a way to encourage commerce 
and lending by making such instruments, including negotiable mortgage notes, as liquid and transferable as 
possible. The UCC, with state-specific variations, in significant part governs the assignment and transfer of 
mortgage notes. Article 3 of the UCC applies to the negotiation and transfer of a mortgage note that is a 
“negotiable instrument,” as that term is defined in Article 3. In addition, Article 9 of the UCC applies to the sale 
of “promissory notes,” a term that generally includes mortgage notes. 

In addition, as a general matter, the securitization of a loan under a typical pooling and servicing 
agreement provides both for the negotiation of negotiable mortgage notes (by indorsement and transfer of 
possession to the securitization trustee or the custodian for the trustee) and for an outright sale and assignment 
of all of the mortgage notes and mortgages. Thus, whether the mortgage notes in a given securitization pool 
are deemed “negotiable” (as we believe m(.)sL typically are) or “non-negotiable” will have little or no substantive 
eft'ect under the UCC on the validity of the transfer of the notes. The typical securitization process eftects valid 
transfers of the mortgage notes and related mortgages in accordance with the provisions of Articles 3 and 9 of 
the UCC. 

Under the UCC, the transfer of a mortgage note that is a negotiable instrument is most commonly 
effected by (a) indorsing the note, which may be a blank indorsement that does not identify a person to whom 
the mortgage note is payable or a special indorsement that specifically identifies a person to whom the mortgage 
note is payable, and (b) delivering the note to the transferee (or an agent acting on behalf of the transferee). As 
residential mortgage notes in common usage typically are “negotiable instruments,” this is the most common 
method to transfer the mortgage note. In addition, even without indorsement, the transfer can be effected 
by transferring possession under the UCC. Moreover, the sale of any mortgage note also eftects the transfer 
(,>f the mortgage under Article 9. Securitization agreements often provide b(.)Lh for (a) the ind(.)rsement and 
transfer of possession to the trustee or the custodian for the trustee, which would constitute a negotiation of the 
mortgage note under Article 3 of the UCC and (b) an outright sale and assignment of the mortgage note. Thus, 
regardless of whether the m(,)rtgage notes in a securitization trust are deemed “negotiable” or “non-negotiable,” 
the securitization process generally includes a valid transfer of the mortgage notes to the trustee in accordance 
with the explicit requirements of the UCC. 

In addition, Article 3 (.)f the UCC permits a person without possession to enforce a negotiable m(.>rLgage 
note where the note has been lost, stolen, or destroyed. Courts have consistently affirmed the use of the salient 
provisions of the UCC to enforce lost, stolen or destroyed negotiable mortgage notes that are owned by a 
securitization trust when the trust or its agent has proved the terms of the mortgage notes and their right to 
enforce the mortgage notes. 

3. Assignment and Transfer of Ownership of Mortgages 

As stated above, when a mortgage loan is assigned and transferred as part of the securitization of the 
mortgage loan in the seci.mdary market, b(.)Lh the m(,>rtgage note and the mortgage itself are typically sold, 
assigned, and physically transferred to the trustee that is acting on behalf of the MBS investors or a trustee- 


3 



474 


designated document custodian pursuant to a custody agreement. The assignment and transfer are usually 
documented in accordance with a pooling and servicing agreement. 

When a mortgage note is transferred in accordance with common mortgage loan securitization 
processes, the mortgage is also automatically transferred to the mortgage note transferee pursuant to the 
general common law rule that “the m(.)rLgage follows the note.” The rule that “the mortgage follows the note” 
has been codified in the UCC, but the rules common law origins date back hundreds of years, long before the 
creation of the UCC. As stated in the official comments to UCC § y-2U3(g), the section “codifies the common- 
law rule that a transfer of an obligation secured by a security interest or other lien on personal (.)r real property 
also transfers the security interest or lien.” UCC § 9-203 cmt. 9. All states follow this rule.-’ 

In addition to the codification under UCC § 9-203{g), reported court cases in nearly every state and 
non-UCC statutory provisions in some states make clear that “the mortgage follows the note.” Regarding the 
impact of these UCC provisions, one treatise states; “Article 9 makes it as plain as possible that the secured party- 
need not record an assignment of mortgage, or anything else, in the real property records in order to perfect 
its rights in the mortgage.” J. McDonnell and J. Smith, Secured Transactions Under the Uniform Commercial 
Code, § 16.uy[31 Ibl. Indeed, courts in several states have affirmed and applied the “mortgage follows the note” 
rule in cases where the mortgage assignment was not recorded by the transferee and even when there was no 
actual separate written assignment of the mortgage.' 

Common securitization practices are consistent with the general rule that “the mortgage follows the 
n(,)Le”: pursu'ant to the pO(.)ling and servicing agreement that governs an MBS, and the language (.)f assignment 
typically contained in such an agreement, the mortgage note and the mortgage itself are sold, assigned, 
transferred and delivered to the trustee, and the transferor also typically delivers a written assignment of 
the mortgage that is in blank in recordable form. Courts have held that the language of sale and assignment 
contained in a pooling and servicing agreement, along -with the corresponding transfer, sale, and delivery of the 
mortgage note and mortgage, are sufficient to transfer the mortgage to the transferee/ trustee or its designee or 
nominee. 

The creation of an interest in or lien on real property, including a mortgage, is governed by the non- 
UCC faw of the state in which the property is located. T.ikewise, the enforceability of mortgages (including 
the right and method to foreclose) is subject to all of the conditions precedent and requirements that are set 
forth in the particular mortgage itself and in all applicable state and local laws. Those conditions precedent 


’ Hciwever, in some slates, such as Massachusetts and Minnesota, courts have held that the transfer ofa mortgage note without an 
express transfer of the mortgage vests in the note holder only an equitable interest in the mortgage, ihis arrangement has been 
described as foUo-ws: the holder of the mortgage holds the legal title to the mortgage in constr uctive trust for the benefit of the 
mortgage note holder. In both states, however, case law suggests that foreclosure proceedings must be initiated by^ or at least in the 
name of, the holder of the legal tide in the morlgage. 

' In most states, recording of an assignment of mortgage is generaU-y not required to ensure the enforceability of the assignment 
of mortgage as betw-een the assignor and assignee, and anymne with knowledge thereof It is bey'ond the scope of this Executive 
Summary and the While Paper to discuss in detail the potential risks to the mortgage transferee of not recording a mortgage as- 
signment- Tliose risks miglit include, among others, delay'ing the transferee’s ability^ to foreclose on the mortgage, failing to receive 
notices that may go to the mortgagee of record, and otherwise leaving the assignee open to neghgenl or fraudulent actions or 
inactions by the mortgagee of record that could bind the mortgage transferee and impair the value or enforceability^ of the mort- 
gage. Similarly', w’hen an assignment of mortgage is not recorded, the assignor may' be liable for certain obligations imposed upon a 
mortgagee ol record, such as the obligation to provide apay-olI slaLemeiiL or mortgage release w'ithin a designated Lime period. 


4 



475 


and procedural requiremenls vary from mortgage Lo mortgage and from state to state. Thus, ownership of a 
mortgage {i.e., without notice to the mortgagor or the public, without judicial proceedings (where required), 
without satisfaction of other conditions precedent or procedural requirements in the mortgage itself or in 
applicable state lawO, does not alw^ays give the holder of the mortgage the legal ability to foreclose on the 
mortgage. Though a discussion of the other necessary prerequisites Lo foreclosure is beyond the scope of this 
Executive Summary and the White Paper, the fact that other steps may need to be taken by the owmer of a 
mortgage note, or the owner of a mortgage, is neither unique nor surprising in our legal and regulatory system 
and does not diminish an otherwise legally elfective transfer of the mortgage note and mortgage. 

The use of MERS as the nominee for ihe benefit of the trustee and other transferees in the mortgage 
loan securitization process has been a subject of litigation in recent years regarding a mortgage note holder’s 
right Lo enforce a mortgage loan registered in MERS. Some cases address the authority or ability of MERS or 
transferees of MERS to foreclose on a mortgage for which MERS is or was ihe mortgagee of record. As a general 
matter, the assignment and transfer of a mortgage to MERS as nominee of and for the benefit of the beneficial 
ow'ncr of the mortgage docs not adversely impact the right to foreclose on the mortgage. Decisions in many 
jurisdictions support this conclusion. 

There are several minority decisions that, in some form, have taken issue vcith MERS. But none of 
these decisions, to our knowledge, has invalidated a mortgage for which MERS is the nominee, and none of 
these decisions has challenged MERS’ ability to act as a central system to track changes in the ownership and 
servicing of mortgage loans. 

Finally, il is important to recognize that ihe UCX) does not displace traditional rules of agency law. 
Under general ^ency law, an ^ent has authority to act on behalf of its principal where the principal “manifests 
assent” lo the agent “that the agent shall act on the principal’s behalf and subject to the principal’s control, and 
the agent manifests assent or otherwise consents so to act.” Accordingly, the UCC does not prevent MERS 
or others, including loan servicers, from acting as the agent for the note holder in connection wTth transfers 
of ow'iicrship in mortgage notes and mortgages. In short, principles of agency law^ provide MERS and loan 
servicers another legal basis for their respective roles in the transfer of mortgage notes and mortgages. 

4. Conclusion 

In summary, the longstanding and consistently applied rule in the United States is that, w^hen a mortgage 
n(,)le is transferred, “the in(,>rLgage follows the note.” When a mortgage note is transferred and delivered L(.> a 
transferee in connection with the securitization of the mortgage loan pursuant Lo an MBS pooling and servicing 
agreement or similar agreement, the mortgage automatically follow^s and is transferred to the mortgage note 
transferee, nolwilhslanding that a third parly, including an agenl/nominee entity such as MERS, may remain as 
the mortgagee of record. Both common law and the UCC confirm and apply this rule, including in the context 
of mortgage loan securitizations. 



476 


Exhibit A 


Alston & Bird LI.P 

Bingham McCutchcn LLP 

C^advvalader, Wickersham & Taft LLP 

Dechert LLP 

Hunt on & Williams LLP 

Katten Muchin Rosenman LLP 

K&T. Gates T.T.P 


T.ovvensLein Sandler PC 

Mayer Brow LLP 

O’Melveny & Myers LLP 

Orrick, Herrington ScSutcHlle T.T.P 

Sidlcy Austin LLP 

SNR Denton US T.T.P 


6 



477 


Transfer and Assignment of Residentiai Mortgage 
Loans in the Secondary Mortgage Market 

'Ihe beginnings of the now multi- trillion dollar secondary market for residential mortgage loans date 
back to the federal government’s creation of Fannie Mae in 1938. Since then, the complexity of the secondary 
mortgage market has increased, especially as a result (rf the rapid growth and market acceptance of mortgage- 
backed securities (“MBS”) that began in the 198()s. In contrast, the legal principles and processes by which 
mortgage-related promissory notes and security instruments (mortgages and deeds of trust) are assigned and 
transferred have centuries-old origins. Now, in the midst of the worst economic and housing crisis since the 
1930s, some are questioning whether the traditional stale law principles and processes of assignment and 
transfer can be fully reconciled with today’s complex holding, assignment and transfer systems for mortgage- 
related promissory notes and security instruments, and what methods arc legally cftcctive for participants in 
the secondary mortgage market to establish, maintain and transfer mortgage notes and security instruments. 

This paper provides an overview of the legal principles and pr(.)cesses by which promissory notes and 
related mortgage security instruments are t)q)ically held, assigned, transferred and enforced in the secondary 
mortgage market in connection with loan securitizations and the creation of MBS.^ 

1. Basic Principles 

The t\\T) core legal documents in most residential mortgage loan transactions are the promissory note 
and the mortgage or deed of trust that secures the borrower’s payment of the promissory note. The promissory 
note contains a promise by the borrower to pay the lender a staled amount of money at a specified interest rate 
(which can be fixed or variable) by a certain date. The typical mortgage or deed of trust contains a grant of a 
mortgage lien or other security interest in the borrower’s real property to the lender or, in a deed of trust, to a 
trustee for the benefit of the lender, to secure the borrower’s obligations under the promissory note.^ 

In a typical “private-label” mortgage loan securitization, each mortgage loan, which is evidenced by a 
mortgage note and secured by a mortgage, is sold, assigned and transferred to a trust through a scries of steps: 

• The loan originator or a subsequent purchaser sells, assigns and transfers the mortgage loans 
to a “sponsor,” which is typically a financial services company or a mortgage loan conduit or 
aggregator. 

• The sponsor sells, assigns and transfers the mortgage loans to a “depositor,” which in turn 
sells, assigns and transfers the mortgage loans to the trustee, which will hold the mortgage 
loans in trust for the benefit of the cerlificaleholders. 


' Issues rclalcd lo a parly’s righl lo foreclose or Lo engage in foreelosure-relaled acliviiies are generally oulside the scope of ihis paper. 
^ for ease of reference, “mortgage” will be used throughout much of this paper to refer to both mortgages and deeds of trust, and 
“mortgage note” will be u.sed Lo refer lo a promissory note dial is secured by a inorlgage. 


7 


478 


• The irusLee issues the MBS pursuant Lo a pooling and servicing agreement or trust agree- 
ment entered into by the depositor, the trustee and a master servicer or servicers. 

• The trustee administers the pool assets, typically relying on the loan servicer to perform 
most of the administrative functions regarding the pool of mortgage loans. In addition, a 
document custodian is often designated to conduct a review of the mortgage loan docu- 
ments pursuant to the rcciuircments of the pooling and servicing agreement and to hold 
the mortgage loan documents for the loans included in the trust pool. 

• In general, the loan documents are assigned and transferred from the depositor to the 
trustee through the indorsement of the mortgage note and the transfer of possessi(.m of 
the mortgage note to the trustee or a custodian on behalf of the trustee. An assignment 
of the related mortgage is also t)^ically delivered to the transferee or its custodian, except 
in cases where the related m(,>rtgage identifies Mortgage Electronic Registration Systems 
(“MERS”) as the mortgagee. Such assignments generally are in recordable form, but un- 
recorded, and are executed by the transferor without identifying a specific transferee - a 
so called assignment in blank. 

• In some mortgage loan transactions, MERS becomes the mortgagee of record as the nom- 
inee of the loan originator and its assignee in the local land records where the mortgage 
is recorded, either when the mortgage is first recorded or as a result of the recording of an 
assignment ofmortgage to MERS. This means that MERS is listed as the record title hold- 
er of the mortgage. MERS’ name does not appear on the mortgage note, and the beneficial 
interest in the mortgage remains with the loan originator or its assignee. The documents 
pursuant to which MERS acts as nominee make clear that MERS is acting in such capacity 
for the benefit of the loan originator or its assignee. When a mortgage loan is originated 
with MERS as the nominal mortg^ee {or is assigned to MERS post-origination), MERS 
tracks all future mortgage loan and loan servicing transfers and other assignments of 
the mortgage loan unless and until (.)wnership or servicing is transferred (or the loan is 
otherwise assigned) to an entity that is not a MERS member. In this way, MERS serves 
as a central system to track changes in owaiership and servicing of the loan. Fannie Mae, 

Freddie Mac and Ginnic Mac, among other governmental entities, permit loans that they 
purchase or securitize to be registered with MERS. 

As part of the loan securitization process detailed above, a mortgage note and a mortgage may be 
sold, assigned and transferred several times from one entity to another. The legal principles that govern the 
assignment and transfer of mortgage notes and mortgages are generally determined by state law. S^, e.g.. 
In re Cook , 457 F.3d 561, 566 (6'*‘ Gir. 2006) (state law governed whether transferee had superior interest in 
promissory note secured by mortgage). As such, these principles can vary depending upon the state in which 
the assignor of the mortgage notes, the underlying property, or the relevant mortgage-related documents are 


8 



located. The assignment and transfer of a mortgage note, on the one hand, and of a mortgage, on the other 
hand, are addressed separately below. 

2. Transfer of Promissory Notes Secured by Mortgages 

The residential mortgage notes in common use in the secondary mortgage market typically are 
negotiable instruments. The law of negotiable instruments developed over the centuries as a way to encourage 
commerce and lending by making such instruments, including negotiable mortgage notes, as liquid and 
transferable as possible. See , e.g. . Overton v. Tvler . 3 Pa. 346, 347 (1846) (“[A] negotiable bill or note is a courier 
without luggage”); 2 Frederick M. liart & William F. Willier, Negotiable instruments Under the Uniform 
Commercial Code § l.Ul (“Negotiable instruments play such an important role in the modern commercial 
world that it is dilficult to realize that the struggle for their existence could be as long and c(.)mplex as it has 
been, yet the evolution of the concept took centuries.”). Similarly, the standardization of the forms of mortgage 
notes and mortgages over the past thirty years or more has contributed to the liquidity and transferability of 
mortgage notes and the underlying mortgages. See Peter M. Carrozzo, Marketing the American Mortgage: 
The Emergency Home Finance Act of 1970, Standardization and the Secondary Market Revolution . 39 Real 
Prop. Prob. & TT. J. 765, 799-800 (2004-2005) (“standardization of mortgage documents created marketable 
commodities. Once mechanisms were in place for the secondary market to operate, events rapidly moved 
toward the ultimate goal: the creation of a security which has as its base land [and] yet which wall be as freely 
transferable as stocks and bonds” (internal quotation omitted)). 

The Uniform Conunercial Code (“UCC”), which, with state-specihe variations, has been adopted as 
law by all 50 states and the District of Columbia, governs, in significant part, the transfer of mortgage notes.^ 
Article 3 applies to the neg(.)LiaLion and transfer of a mortgage n(,)Le that is a “negotiable instrument,” as that 
term is defined in Article 3. See UCC 3-102, 3-201, 3-203 and 3-204; e.g. . Swindler v. Swindler . 355 

S.C. 245, 250 (S.C. Ct. App. 2003) (Article 3 governs negotiable mortgage note), in addition, Article 9 applies 
to the sale of “promissory notes,” a term that generally includes all mortgage notes (both negotiable and non- 
negotiable). See UCC §§ l-201(b)(35) and 9-109(a)(3).^ 

The residential mortgage notes in common u.se today are typically negotiable instruments for UCC 
purposes. In addition, as a general matter, the securitization of a loan under a typical pooling and servicing 
agreement provides both for the negotiation of negotiable mortgage notes (by indorsement- and transfer of 
possession to the securitization trustee or the custodian for the trustee) and for an outright sale and assignment 
of all of the mortgage notes and related mortgages. Thus, whether the mortgage notes in a given securitization 


’ References to the UCC are to the Official Text of the Model UCC, as revised, issued by the National Conference of Commissioners 
on Uniform State Laws. 

While Article 9 does not directly govern a mortgage on real property, die fact that a mortgage note is itself secured by a mortgage 
on real property does not render Article 9 inapplicable to transfers of the mortgage note. See UCC § 9- 109(b) (“Hie application of 
this article [9] to a security interest in a secured obligation is not ilIecLed by the fact that the obligation is itself secured by a transac- 
tion or interest to which this article does not apply.”). 

^ Note that the U(L(L eschews the more common US. spelling of “endorsement” for the less common “indorsement.” Tlie U(L(L spell- 
ing is used throughout this paper. 




480 


pool are deemed “negotiable” (as we believe most typically are) or “non-negotiable” will have little or no 
substantive effect under the UCC on the validity of the transfer of the mortgage notes. 'Ihe typical securitization 
process effects valid transfers of the mortgage notes and related mortgages in accordance with the provisions 
of Articles 3 and 9 of the UCC.^ 

What Constitutes a “Negotiable Instrument?” 

A “negotiable instrument” is defined as: 

an unconditional promise or order to pay a fixed amount of money, with or without inter- 
est or other charges described in the promise or order, if it: 

(1) is payable to bearer or to order at the time it is issued or first comes into possession of 
a holder; 

(2) is payable on demand or at a definite time; and 

(3) does not state any other undertaking or instruction by the person promising or order- 
ing payment to do any act in addition to the payment of money, but the promise or 
order may contain (i) an undertaking or power to give, maintain, or protect collateral 
to secure payment, (ii) an authorization or power to the holder to confess judgment 
or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended 
for the advantage or protection of an obligor. 

UCC§ 3-104(a). 

Reference in a mortgage note to a mortgage does not affect the mortgage note’s status as a negotiable 
instrument. See UCC § 3-l()6(b) (“A promise or (.)rder is not made conditional [] by a reference l(.> another 
writing for a statement of rights with respect to collateral, prepayment, or acceleration....”); ^ also Tnt’l 
Minerals & Chem. Corp. v. Matthews, 321 S.E.2d 545, 547 (N.C. Ct. App. 1984) (“referring to a mortgage or 
other collateral fin a mortgage note] docs not impair negotiability” of the note): In re AppOnlinc.com. 285 B.R. 
805, 815-f6 (Bankr. B.D.N.Y. 2002) (reference in mortgage notes to underlying mortgages does not alfecl the 
negotiability of the notes). 

'Ihc fact that a mortgage note contains a variable or adjustable interest rate also docs not affect the 
mortgage note’s status as a negotiable instrument. That is because UCC § 3-1 12(b) provides that “|i|nterest